Oral Answers to Questions

WALES

The Secretary of State was asked—

Child Poverty

Julie Morgan: How many children in Wales have been lifted out of poverty since 1997.

Nick Ainger: I am sure that the House will join me in extending our condolences and sympathy to the family of Peter Law and his many friends in Blaenau Gwent and Wales. He served his community with distinction for 36 years and will be greatly missed.
	The Government are committed to eradicating child poverty. Since 1997, an estimated 50,000 children have been lifted out of poverty in Wales. Further significant steps to tackle child poverty were announced in the Budget, including increases in child trust fund payments and the child tax credit.

Julie Morgan: Does my hon. Friend the Under-Secretary agree that child poverty has fallen further and faster in Wales than in the rest of the United Kingdom, according to the independent Joseph Rowntree Foundation? Does he agree that that is a major achievement, although there is obviously a long way to go? Does he further agree that that is due to the progressive policies that the Government in Cardiff and the Government in Westminster have introduced, such as the minimum wage, the huge rise in employment, the big increase in benefits—

Mr. Speaker: Order. That is too long for a supplementary.

Nick Ainger: I agree with my hon. Friend. Child poverty has fallen faster in Britain—a 22 per cent. reduction—than in any other European country since 1996–97. In Wales, 242,000 families and almost 400,000 children receive child tax credits. That compares well with the family credit system that the Conservative party operated when it was in power, under which only 42,000 families received family credit. The Chancellor announced that tax credits would increase by 14 per cent. in the next three years. We are making work pay—the national minimum wage has contributed significantly to reducing child poverty in Wales and the UK.

Roger Williams: Childhood deprivation and poverty is often measured by the take-up of free school schools, which is triggered by the benefits that families receive. In rural areas, take-up of benefits is insufficient, partly because many self-employed people find it difficult to fill in the forms. Is the Under-Secretary convinced that his figures on childhood poverty are true and reflect the position on the ground?

Nick Ainger: Yes, I am. The independent Joseph Rowntree Foundation confirmed the figures. It is important that those who are in work—and are perhaps self-employed—claim the child tax credits because significant sums are involved. I assure the hon. Gentleman that, if people make those claims, they will be amply rewarded. The credits are generous, lift significant numbers of children out of poverty and make work pay.

Cheryl Gillan: I associate myself and Conservative Members with the tribute that the Under-Secretary paid to the former Member for Blaenau Gwent. Our thoughts are with his family at this time.
	Notwithstanding the welcome reduction in child poverty in Wales, the Government have, once again, missed their targets. Around 28 per cent. of our children still live below the poverty line. In addition, local authorities in Wales take an increasing number—now well over 4,000—into care, and 58 per cent. leave care with no qualifications. What is behind the increase, and what can be done to halt the trend among some of our most disadvantaged children?

Nick Ainger: Under the Conservative Government, in which the hon. Lady served, child poverty tripled in 18 years. Although we need to look forward, it is worth remembering that before any criticism is levelled at the Government, who have presided over the biggest fall in child poverty in any country in Europe.
	The hon. Lady made a specific point. Yes, genuine problems have to be tackled and we need to deal with them. However, we cannot do that if we adopt the Conservative party's current economic policy, which would mean reductions in public expenditure.

Affordable Housing

Elfyn Llwyd: What discussions he has had with the First Minister of the Welsh Assembly Government on affordable housing in Wales, with particular reference to cash allocated to assist first-time buyers.

Peter Hain: Regular ones. Both we and the Welsh Assembly Government are committed to increasing the supply of affordable housing and offering choices to people seeking their own home.

Elfyn Llwyd: Before I ask my question, may I also associate myself and my party fully with the sincere condolences being sent to the family of the late Member for Blaenau Gwent?
	The Secretary of State will recall that we touched on the subject of affordable housing during the Welsh Grand Committee debate. The Under-Secretary has now written to me to say that it is a devolved matter. May I suggest four things that Westminster could be doing? The first would be to look again at stamp duty, and at the variable rates for second homes. The second would be to relax the planning system to release land specifically for affordable housing. The third would be to allow local authorities to borrow at public sector rates, backed by Government guarantee. The fourth would be to scrap VAT on renovations. Those four things could be done very easily by Westminster, working with our friends in the National Assembly.

Peter Hain: The hon. Gentleman makes some practical proposals that we shall want to look at. We are constantly looking at these issues. Like him, I am concerned about the problem of affordability, especially for first-time buyers. In rural areas such as his, that is a particular problem. House prices have increased massively in Wales, catching up with those in the rest of the UK and reflecting Wales's growing prosperity. At the same time, I know that he will acknowledge that, since 2000, more than 1,200 homes have been provided under the homebuy scheme, that more and more money in social housing grant is going in through the Welsh Assembly Government, rising to £96.4 million, and that there are more homeowners in Wales than ever before in our history. All of that is good news.

Ian Lucas: In areas of economic prosperity such as Wrexham, there is great pressure on the housing market. Does my right hon. Friend agree that we need to take a balanced approach to housing that looks not only at the private sector but at much greater development of the public and social housing sectors?

Peter Hain: Yes, I do, and the Government are now tackling the problem with a three-pronged strategy. We are increasing opportunities for home buyers. There are more than 1 million extra home owners in Britain since we came to power, with a substantial number of new home owners—I am not sure of the figure, but it is probably well over 50,000—in Wales alone. The low mortgage rates that have made that possible are part of our economic success, but my hon. Friend is right to say that we need more social housing—the Welsh Assembly Government are working on that—along with more shared equity schemes, which the Government are promoting, including in Wales.

Lembit �pik: May I also send my condolences and those of my party to the friends and family of Peter Law? He was a man of true conviction and personal integrity, and the House is the poorer for his passing.
	The Secretary of State mentioned house prices. Is he aware that Welsh house prices have risen by 120 per cent. in five years, and by 157 per cent. in rural areas such as Montgomeryshire, where rural households earn only about 23,000? For that reason, will the Government consider introducing a strategy actively to promote community land trustssuch as the one that has been successfully piloted in Castle Ceireinion shared ownership schemes and new council housing stock, to help to resolve the acute and worsening housing crisis in Wales?

Peter Hain: The hon. Gentleman will know that there is a community land trust demonstration project in Powys, which has been supported by the Welsh Assembly Government. That is all to the good. I sympathise with his point about first-time buyers. Why have house prices risen so tremendously in Wales? It is because Wales is now healthier and more prosperous than it has ever been. My constituency has had rock-bottom house prices over the years, but some have now gone up by three or four times. That reflects the increasing wealth among home owners, which is good, but it also means that we have to do more for first-time buyers, which we are.

Community Support Officers

Albert Owen: How many additional community support officers will be recruited in Wales following the 2006 Budget.

Jessica Morden: How many additional community support officers will be recruited in Wales following the 2006 Budget.

Peter Hain: In September 2005, there were 282 community support officers on patrol in Wales. I expect the figure to rise to around 750 by this time next year.

Albert Owen: I thank my right hon. Friend for that response. He will know that the Government are really delivering on community policing. In north Wales in particular, the extra resources from central Government and from the local government precept have produced tangible results. He will also be aware, however, of the concerns expressed by North Wales police authority and local communities that the proposed larger police forces will take resources from local policing. Will he assure the House that any proposed larger force will allow community policing to continue and to be properly funded?

Peter Hain: I agree that there has been a big increase in neighbourhood policing, and north Wales has led the way in that regard. I want to give my hon. Friend an emphatic guarantee that the proposal for an all-Wales forceif it goes throughwill protect neighbourhood policing because the new force will have the capability to tackle new, difficult crimes such as serious organised crime, drug dealing and terrorism that small forces such as the North Wales police force do not have. He should not take my word for that; he should take the advice of Her Majesty's inspector of constabulary. I am confident that the policies being put in place by the Home Secretary will deliver protective policing for those big, serious new threats as well as protect neighbourhood policing, in north Wales in particular.

Jessica Morden: I, too, welcome the new community support officers for Gwent. Does my right hon. Friend agree that CSOs have been a big success in constituencies such as mine? They work alongside the police, provide a uniformed presence and spend up to 90 per cent. of their time out on the beat, which has had a big impact on tackling antisocial behaviour. Does he also welcome the further powers proposed for them in the Police and Justice Bill?

Peter Hain: Yes, I agree with the point made by my hon. Friend. We should remember that when we first proposed community support officers they were not universally popular, and we were criticised, as we often have been when we have introduced new reforms. They are a huge success, and they are not a substitute for police officers, as Wales has also had 1,000 more police officers, which includes Gwent. As a result, crime is decreasing on almost every measure and local communities are feeling much more secure.

Philip Davies: Does the Secretary of State agree that his crowing about the increase in community support officers making our streets safer is pointless when the Home Secretary is letting people out of prison early

Mr. Speaker: Order. That was out of order.

Betty Williams: I shall try to stick to the question that was asked, Mr. Speaker.
	Is my right hon. Friend the Secretary of State aware of the excellent crime detection figures in the North Wales police area, especially in the western and central divisions covering my constituency? Will he join me in congratulating North Wales police on such excellent results? Does he agree that they are a direct result of the investment that North Wales police has received from the Government?

Peter Hain: I do. North Wales police has had an excellent record in tackling crime on almost every measure, especially in community support for policing and community support schemes. I give her the same assurance as I gave to my hon. Friend the Member for Ynys Mn (Albert Owen). Any changes or reorganisationespecially with the protection for regional accountability, a deputy chief constable now being provided by the Home Secretary, and the costs being dealt withwill be a big boost to policing across Wales, including her constituency.

Cheryl Gillan: Recruitment of additional community support officers might suffer unless problems with the restructuring process and its funding are clarified. Early in February, Home Office officials told police authorities in Wales that they would produce detailed information in response to concern about the extra cost to the taxpayer and the impact on precept equalisation. By the end of April, however, that had not been done. Does the Secretary of State know when police authorities will receive the urgently required details from the Home Office?

Peter Hain: May I start off on a point of agreement? Policing in Wales, and many other services, would suffer if the Conservatives' plans for public spending cuts were visited on Wales. In respect of the costs of reorganisation, start-up costs, the costs of extra protective services for which the whole reform is designed and the equalisation of the police precept are all important issues. Home Office officials, together with Ministers, are working on that now with police authorities, and I am sure that a satisfactory outcome can be achieved.

Cheryl Gillan: In other words, those details have not been forthcoming from the Home Office. I further understand that the four chief constables have written to Sir Ronnie Flanagan, head of Her Majesty's inspectorate of constabulary, expressing grave concern about the Home Office's 75 per cent. cut in its estimates for the budget required to deliver the protective policing that the Secretary of State mentioned. They ask whether a fundamental change has been made in the national standards. As this is an operational issue, which strikes at the heart of the reason behind the mergers, how can our police forces in Wales deliver protective policing and have confidence in a Home Office that slashes police estimates with no apparent explanation?

Peter Hain: The hon. Lady must know that all four chief constables support the principle of a single all-Wales force. They, like Her Majesty's inspectorate of constabulary, know that whatever the Conservative and other Opposition parties say, Wales will not have the capabilities to fight serious organised crime, drug dealing and terrorism unless the reorganisation is implemented. She is right, however, to say that they have written that letter, and I share their concerns. I support them in getting those concerns resolved with the Home Office, and I am confident that we can achieve that.

John Smith: I welcome the news about the CSOs in Wales. Will my right hon. Friend join me in congratulating Superintendent Sue Hayes and her team in the Vale of Glamorgan division of South Wales police on another record-breaking year in tackling crime, with a 4.3 per cent. reduction? Does he, however, share my fear that high-achieving police divisions will find it increasingly hard to hit and exceed their targets when they are doing so well already? Will that be taken in consideration in the drawing up of future targets?

Peter Hain: I am sure that it will, and I agree that we have many outstanding police officers in Wales. With the extra 1,000 officers recruited under this Government, compared with the Tory Government's record of cuts, we now have a proud record and a proud police force, designed and with the capability to tackle crime through Wales.

Tourist Medical Facilities

Michael Fabricant: What discussions he has had concerning the provision of facilities for the treatment of minor injuries suffered by English tourists while visiting Wales.

Nick Ainger: I have regular discussions with the Assembly Minister for Health and Social Services on a range of health issues.
	English tourists, like anyone in Wales, have access to the 15 major accident and emergency departments and nearly 40 minor A and E departments and minor injury units.

Michael Fabricant: The Minister will know that during July, August and part of September, the caravan sites, bed-and-breakfast places and hotels start filling up, as do cottages and small hospitals. The Tywyn cottage memorial hospital, for instance, experiences a demand five times as great as it normally experiences during the rest of the year. Will the Minister assure me, and the many people in my constituency who use such hospitals, that the hospitals will continue to be maintained and the minor injuries units will not be closed?

Nick Ainger: I am grateful to the hon. Gentleman for what he has said, and particularly for what he said about Tywyn community hospital. He may not know that it has just been the subject of a review, and that improvements are guaranteed for the future.
	The National Assembly recognises the important role that community hospitals play in delivering local services to patients, and there is an investment programme throughout Wales to improve those services. I can assure the hon. Gentleman that the Assembly values its community hospitals.

Jim Sheridan: I am sure my hon. Friend is aware that literally thousands of English tourists will visit Cardiff for the forthcoming cup final. No doubt they will receive a warm welcome from the people of Wales, but will my hon. Friend welcome the same English tourists back to Wales after England has won the World cup?

Nick Ainger: Yes, indeed. In view of the Millennium stadium's proud record in providing facilities for the FA cup final and many other major sporting facilities, I trust that the participants will not have to make use of any of the A and E units in Cardiff.

Agricultural and Environmental Research

Mark Williams: If he will make a statement on the funding of agricultural and environmental research in Wales.

Nick Ainger: Research and development in the sector is not devolved, and the budget is managed on behalf of England and Wales by the Department for Environment, Food and Rural Affairs. DEFRA has already committed more than 6 million of R and D funding to contractors based in Wales for the current financial year, and more contracts will be awarded during the year.

Mark Williams: The Minister will be aware of widespread concern about the loss of 29 jobs at the Institute of Grassland and Environmental Research in my constituency, and deeper concern about the uncertain future in the longer term. There is a suggestion that closer governance is on the agenda for the Rothamsted institute in Hertfordshire, which could leave IGER in a highly vulnerable position in the future. On that basis, will the Minister support another option whereby IGER would become an enhanced agri-research institute for Wales? That would allow it to retain its independence, and would enable the National Assembly to undertake its sustainable development agenda more directly.

Nick Ainger: I am aware of the concerns raised by the hon. Gentleman, who has met me and my right hon. Friend the Secretary of State to discuss these and other issues. I am aware also of the discussions taking place about a single funding stream for IGER and the Rothamsted institute, which together are in consultation with the Biotechnology and Biological Sciences Research Council. I shall discuss the matter with Carwyn Jones on Monday, and write to the hon. Gentleman afterwards.

Microgeneration

Madeleine Moon: What estimate he has made of the environmental and economic impact on Wales of the Budget announcements on microgeneration and the National Institute for Energy Technologies.

Peter Hain: The Budget represents a good deal for Wales and for clean energy. Homes and businesses in Wales will benefit from the extra 50 million boost for microgeneration in the UK.

Madeleine Moon: Wales is superbly placed to become a leader in renewable energy and the emerging energy technologies. Does the Secretary of State agree that Technium, which is based just across the border from my Bridgend constituency and the area represented by my hon. Friend the Member for Ogmore (Huw Irranca-Davies), would be an invaluable target for investment as a site for research in that growing market? It would also provide high-value jobs for workers from both constituencies.

Peter Hain: Yes, I agree. Renewable energy technology, including for microgeneration, is the key to the future. It can also provide many jobs, and take advantage of the excellent potential in my hon. Friend's constituency.

Sport Finance

Adam Price: What assessment he has made of the impact of the London Olympics on Wales's share of sport-related lottery funding.

Peter Hain: I am confident that the overall impact of the 2012 Olympic and Paralympic Games will be beneficial to Wales.

Adam Price: Wales receives just 4.5 per cent. of sport-related lottery funding. That is less than our population share and the lowest figure of all the lottery distributors. Will the Secretary of State guarantee that our share will not fall even further as a result of the 1.5 billion of lottery funding to be used to pay for the London Olympics? [Interruption.]

Mr. Speaker: Order. Will the House come to order?

Peter Hain: Obviously, my right hon. Friend the Secretary of State for Culture, Media and Sport will want to reflect on the points that the hon. Gentleman makes, but lottery funding has made a huge impact on Wales. When the Olympics come to London, they will also provide opportunities to take advantage of various sites in Wales.

NHS Dentistry

Peter Bone: What discussions he has had with the Health Minister in the National Assembly for Wales on cross-border issues relating to NHS dentistry in Wales.

Nick Ainger: I met the Assembly Minister for Health and Social Services only last week to discuss a range of issues related to NHS dentistry in Wales, and was pleased to hear that the Assembly Government's increased investment means that more than 230,000 additional NHS places have been created.

Peter Bone: In 1997, the people of Wales had access to an NHS dentist. Today, many people have to travel considerable distances, including across national borders, to find one. Would the Minister like to apologise for that appalling state of affairs?

Nick Ainger: No, I would not. The Welsh Assembly Government are planning to invest an additional 30 million in NHS dentistry in the coming year. That will bring total spending on NHS dentistry in Wales from 81,000 in the last year to over 210 million in the coming year. As I have said, that will create an additional 230,000 places, so that people will have access to an NHS dentist.

Severn Estuary Barrage

Jennifer Willott: If he will make a statement on the recent proposals for a barrage in the Severn estuary.

Peter Hain: Tidal energy has huge potential to supply a significant proportion of the country's future energy needs and in turn make a significant contribution to our emissions reduction targets. I therefore welcome and support the renewed interest by private investors in the Severn barrage proposal.

Jennifer Willott: In a future feasibility study for a Severn barrage, will the Minister commit to including all potential ways to exploit the estuary's tidal power, including tidal lagoons and fences, and marine current turbines? Will he ensure that the full financial and ecological costs are taken into account?

Peter Hain: Yes. That will be a matter for my right hon. Friend the Secretary of State for Environment, Food and Rural Affairs, and for my hon. Friend the Energy Minister. The Welsh Assembly Government have strongly backed that exciting project, and I support them. It is the biggest renewable energy project in the UK and the world as a whole, and could account for up to 5 per cent. of UK electricity production. Its output would be the equivalent of what is produced by at least two nuclear power stations, and would help us meet the shortfall in our generating capacity that will open up after 15 years.

David Davies: Does the Secretary of State agree that the Severn barrage is at least 20 years from completion and that we would, therefore, be crazy to rule out existing technologies such as nuclear, which could plug our energy gap without increasing carbon emissions?

Peter Hain: The energy review is looking at nuclear for precisely that reason. The Prime Minister set up the review because a big gap will open up in our generating capacity in 15 years' time. All options therefore have to be looked at, but I hope that the hon. Gentleman will support the Severn barrage scheme. If he and his leader are serious about going green, they ought to back renewable energy, offshore wind farms and projects such as the Severn barrage, which make it viable to have clean, green energy in the future.

PRIME MINISTER

The Prime Minister was asked

Engagements

Willie Rennie: If he will list his official engagements for Wednesday 3 May.

Tony Blair: This morning, I had meetings with ministerial colleagues and others. In addition to my duties in the House, I will have further such meetings later today.

Willie Rennie: Just what does it take for the Prime Minister to accept the Home Secretary's resignation?

Tony Blair: I believe it is important that a system that has not worked properly for decades is sorted out. The Home Secretary is sorting it out and it is right that he continues to do that.

Michael Foster: With educational standards constantly rising in our schools, will my right hon. Friend join me in encouraging head teachers to sign up eligible pupils to the Government's national academy for gifted and talented youth, so that many more young people receive the education that is best suited to their individual needs?

Tony Blair: My hon. Friend is absolutely right to draw attention to the success of the academy, which is working with about 85,000 very able young people across the country. We want to extend the programme so that those who are especially gifted and talented in our schools, who have often not had opportunities in the state system, can access those opportunities irrespective of their wealth and get the very best education, tailored to their personal needs.

David Cameron: The Home Secretary was told last July about the scandal of dangerous prisoners released on to our streets instead of being considered for deportation. The Prime Minister has now had a week to find out what is actually going on in the Home Office. Can he explain why the rate at which prisoners were released and not deported actually accelerated after the Home Secretary found out about it?

Tony Blair: Yes, I can explain that. Back in August 2005, before any parliamentary questions were raised about the issue, the practice of the immigration department changed so that instead of relying on the prisons to notify it of the release dates of prisoners, it sent immigration officers directly into prisons. That, therefore, meant that many more cases were identified and I can give the right hon. Gentleman the figures. After that point, there were 1,000 actual removals and deportations and 3,000 cases considered, so the rate at which cases came to the immigration and nationality department increased dramatically. However, from 30 March, every case is considered before release and that, let me tell the House, is the first time that has happened for decades.

David Cameron: That is absolutely no explanation why the rate accelerated. Is not the reason why the number accelerated made clear by a senior immigration officer? He said:
	There was an unwritten rule that immigration officers could not go to prisons because senior officials knew that most of the prisoners up for deportation would automatically claim asylum. This was one of several 'creative' solutions thought up by senior officials to please ministers,
	so that the official asylum numbers would come down. Can the Prime Minister give us an absolute assurance that that was not the case?

Tony Blair: Yes, I can, for the reason that I have just given. The whole number of cases being considered increased. The right hon. Gentleman's suggestion that somehow the system was changed and weakened by the Home Secretary is wrong. About 1,500 prisoners are being deported a year. If we go back, not just over the period of this Government, but over the past couple of decades[Interruption.] I say this not in excuse or mitigation but to show that the system has had faults from the beginning. If, for example, we take the time when the right hon. Gentleman was a special adviser at the Home Office[Interruption.] I am not expecting him to take responsibility; I am simply saying that whereas the system now deports 1,500 a year, at that time, the number of people removed on court recommendation, or as not conducive to the public good, was 370. At that time, only one in five failed asylum seekers were removed; now, we remove more than the number of unfounded asylum claims every month. The backlog of cases was 60,000; it is now a few thousand.
	If the right hon. Gentleman would like to know how many cases were not considered then, I cannot tell him and neither can he tell me, because there were no such records. Incidentally, at that time, according to Government figures at that time from Earl Ferrers, there were at least 6,000 prisoners at any one time who were in our prisons whose nationality we did not know.
	All I say to the right hon. Gentleman is this: this system has not worked properly for decades, and it is actually working now. We have to work through the backlog of cases, which we will do, but it is completely wrong to say that this problem was created or began under this Home Secretary.

David Cameron: People listening to that answer will, frankly, think it pathetic. This scandal has happened on the Prime Minister's watch and he cannot run away from responsibility for it. His assurances are worth so little, when last week at the Dispatch Box, he admitted that he did not even have the figures.
	I have a letter from another immigration officer who has worked in the service for 30 years. He says that we
	are under instruction not to get involved in assisting the police with offenders . . . because these offenders are likely to claim asylum and tip the scales the wrong way. Thus are the figures massaged.
	Should we not believe the people who have been working on the front line for nine years rather than a Prime Minister who did not know about this nine days ago?

Tony Blair: If the right hon. Gentleman talks to people on the front line, they will tell him that there have been problems with this system for a very long time. The important thing is how we now overhaul not just the way the system works, but the system itself, and my right hon. Friend the Home Secretary will deal with that in a few moments. The fact is that we have not deported all those convicted of imprisonable offences from the very beginning of this system. I think that it is now time that anybody who is convicted of an imprisonable offence and who is a foreign national is deported.
	I just remind the right hon. Gentleman that, when this Government introduced a provision in the Nationality, Immigration and Asylum Act 2002 to say that anybody convicted of any offence carrying more than two years' imprisonment should not be eligible for asylum and therefore could be deported, his party opposed that amendment. In addition[Interruption.] I am sorry, but if we want to take the measures, let us take the measures. Let me also point out that, when we introduced the Criminal Justice Act 2003 that allowed us to carry out the early removal of these prisonersin other words, instead of waiting to the end of their sentence, we could remove them earlyhis party also voted against that Act. So I suggest that we now take the measures necessary not just to improve the way the existing system works, which the Home Secretary has done, but to change it fundamentally for the future.

David Cameron: I look forward to the Home Secretary's statement. I stuck around to listen to his statement last week when the Prime Minister scuttled out of the building.
	In March this year, the Home Secretary was told that a significant number of the criminals released and not deported had committed the most serious offences, including murder and rape. It is now clear that he did not tell the Prime Minister for three weeks. Does the Prime Minister agree that this is the sort of information that a Prime Minister should be told at once?

Tony Blair: The important thing was that, from 30 March onwards, the new system that was put in place meant that the cases were considered prior to release. That has now been done; the backlog is now being dealt with.
	I return to the point that I have made. On any basis, for years we have not been deporting all those people convicted of a serious criminal offence. I say now, Let us deport all those people, and I hope that we can get support for that right across the House. Up until now, every time we have taken these measures, they have been opposed by the Conservative party.

David Cameron: Let us just be clear about what we have heard: murderers, rapists, paedophiles released from prisonand the Prime Minister does not want to know immediately. What sort of Government is that? At the weekend, the Prime Minister was asked whether the Home Secretary should resign. He said, It depends. On what does it depend?

Tony Blair: I do not believe that the Home Secretary has created the problems of this system. I believe that those problems have existed for a very long time, in the way in which I have described. I think that it is important that we take the measures necessary to sort out the existing system. That has been done and that is why, since 30 March, the cases have been considered prior to release. But I think that there is a far bigger question, which was raised by the shadow Home Secretary earlier. The fact is that even if all the cases are considered prior to release, we do not at the moment deport all those people convicted of a serious criminal offence. The truth is that even if we take those cases that have been considered, there are still a significant number that, having been considered under the existing systemwhich has, as I say, been in place for decadesdo not result in deportation. Therefore, in my view, it is not just a question of the existing system; it is about making sure that that system is radically overhauled so that those who are convicted of a serious criminal offence are deported automatically. If we do not do that, we may consider all the cases in time, but we will not deport all the people who should be deported.

David Cameron: The fact is that 1,000 people were released from prison and their deportation was not even considered. This Home Secretary will for ever be associated with the scandal of releasing foreign prisoners on to our streets. While the Prime Minister keeps him in office, his claims to be tough on crime will be completely hollow. Are not people now paying the price for the arrogant attachment to office of a leader who has completely lost control?

Tony Blair: That was the right hon. Gentleman's pre-arranged soundbite. Let me just tell him that, as I have just pointed out to himI notice that he did not come back on any of the facts that I gavethis is a system that has not considered all those cases prior to release at any point. Even if those cases were considered, significant numbers have always not been deported. As I said to him a moment or two ago, at the time when he was working in the Home Office, it had to admit that about 6,000 prisoners in the system at any one time did not even have their nationality identified. All that I am saying, very simply, is this: there are faults with the present system in its implementation, which have been corrected since 30 March, but the real issue, which we have to face in this House if we want to deal with the public concern, is to change the system itself.

David Anderson: Is my right hon. Friend aware of the decision handed down from the House of Lords relating to mesothelioma sufferers who were injured at work through being illegally exposed to asbestos? Is he also aware of the devastating impact that that will have on thousands of workers and their families, and can he give them some comfort today?

Tony Blair: I understand the problem that my hon. Friend raises about injury through asbestos. Perhaps the best thing is for me to find out from the Department of Trade and Industry what the up-to-date position is and write to him about it.

Menzies Campbell: Is the Home Office fit for purpose?

Tony Blair: That might be a question better asked of the right hon. and learned Gentleman. I do not believe that the answer to this problem lies in reorganising the Home Office. I think that the fit between prisons, immigration and asylum, and crime is the right one. The issue is the way in which the system works. I make the same point to him as I do to the right hon. Member for Witney (Mr. Cameron): if we really want to deal with this issue, we have to be prepared to say that we are going to deport people back to their countries if they are convicted of serious criminal offences, because the majority of people that the public are concerned about are people whose cases have been considered, but who have not been deported under the existing system.

Menzies Campbell: Let me make it clear that when the Prime Minister produces his proposals, we will obviously consider them in detail, but in the past nine years we have had dozens of pieces of law and order legislation[Interruption.]

Mr. Speaker: Order. Allow the right hon. and learned Gentleman to be heard.

Menzies Campbell: In the past nine years, we have had dozens of pieces of law and order legislation and hundreds of new offences have been created. Is not what we need less legislation, better government and a new Home Secretary?

Tony Blair: No, I think we need better legislation, and I am delighted that the right hon. and learned Gentleman has said that he will examine our proposals carefully. Let me just point out, however, that he has voted against every single one of the 12 or so measures that we have taken to tighten up the law on asylum and illegal immigration, and he voted against the criminal justice legislation and the antisocial behaviour legislation. So, there are people I will take lessons from on law and order, but not Liberal Democrats.

David Clelland: Apart from the minimum wage, statutory holidays, Sure Start, low unemployment, low mortgages, free eye tests, prescriptions, TV licences and bus travel, and the 200 winter fuel allowance for pensioners, 2 million children taken out of poverty, 2 million pensioners taken out of poverty, more teachers, nurses, doctors and police, and lower crime, hospital waiting lists and class sizes, what have the Labour Government done for us?

Tony Blair: As the People's Liberation Front would say, there is doubled maternity pay and doubled maternity leave. There is extra child benefit as well. There is, of course, the case that we have spent more on pensioners than we would have done if we had relinked the basic state pension with earnings, and many other things. I can recommend to my hon. Friend the excellent booklet published by the Union of Shop, Distributive and Allied Workers on 300 Labour achievements.

James Gray: Under the Prime Minister's new theory of ministerial responsibility, the Home Secretary is staying on to sort out this shambles. Will the Prime Minister tell us how long the Home Secretary has got to do that and whether he will be standing down afterwards?

Tony Blair: First, for the reasons that I have already explained, since 30 March, for the first time in decades, cases have been considered before the release of foreign nationals from prison. I come back to the point that I made a moment or two ago. One part of dealing with this is taking measures now to legislate so that everyone who is a foreign national who serves a prison sentence is automatically deported.

Helen Goodman: I recently visited Bishop Barrington school in my constituency, which has got a new science lab and sports hall. The Labour county council, working together with the Government, has spent 38 million on refurbishing and redeveloping 64 schools in my constituency. Is Bishop Auckland unique, or is the pattern repeated throughout the country?

Tony Blair: It is repeated in the next-door constituency to my hon. Friend'sI can tell her thatand also in constituencies up and down the country. The fact is that about 1,500 more per pupil is being spent by this Government. Anyone who goes to their constituencies can see, whether it is in primary or secondary schools, new buildingsoften a new schoolnew computer equipment and extra teachers and classroom assistants. That is of course why larger and larger numbers of our children are passing their exams at 11, 16 and 18, and why the education system is improving all the time.

Crispin Blunt: When will the Prime Minister rewrite the ministerial code to reflect the new doctrine that the bigger the shambles, the more essential it is that the responsible Minister remains in office?

Tony Blair: For the very reason that I have just given to the Leader of the Opposition and others, this is not a problem created by this Home Secretary[Interruption.] It is perfectly obvious when one looks at the factsI know that the hon. Gentleman does not want to hear themthat this is a problem that for the first time is being resolved.

Geraldine Smith: The Home Office is a huge Department covering crime, antisocial behaviour, drugs, prisons, international terrorism and people traffickingall sorts of issues. It is mission impossible for almost any Home Secretary[Hon. Members: Especially this one.] No, I think that this Home Secretary will sort the problems out and should remain in his job. Does the Prime Minister agree that the Home Office should be split up at some stage so that there are two Cabinet Ministers with responsibility for each of the new Departments?

Tony Blair: I totally understand why my hon. Friend says that. In my view, the fit between immigration, asylum, crime and prisons, on the other hand, is a proper fit. The issue, which is important when we go back over the history, is that part of the problem is the rules that apply to people when they are eligible for deportation. For example, there was the case by the immigration appeal tribunal in the Chindamo case back in 2001, when the Home Office was prevented from considering deportation early in the prison sentence of the foreign national.
	If we do not change the rulesit does not matter what structure we haveit will be difficult to do what I am sure the public want, which is to say, If you come to our country and you are a foreign national, and you commit a crime, you should go back to your own country. That   is the real part of the issue. It is absolutely understandable why people raise the issues that they do, but if we look back over the history of this issue, we find that this is a system that has never worked, not for reasons to do with structure in the Home Office but for reasons to do with the system itself.

Simon Burns: Has the Prime Minister recently read paragraphs 2.7 to 2.10 of the ministerial code of conduct? When a Parliamentary Private Secretary at the Department for International Development publicly calls for the Prime Minister to retire and when a PPS in the Home Office, no less, suggests that the Deputy Prime Minister should reconsider his position, does that not suggest that collective responsibility has broken down, or that the Government are in meltdown?

Tony Blair: The question of my hon. Friend the Member for Tyne Bridge (Mr. Clelland) about the achievements of the Government gave the answer to the hon. Gentleman. I appreciate why he wants to go through the details of the ministerial code. I think that the strength of the economy, the investment in schools and hospitals, issues like the minimum wage and 2 million pensioners lifted out of hardship and 700,000 children lifted out of povertythe hon. Gentleman can shake his head, but many people are grateful for the progress that has been made.

Tom Levitt: Just for the record, neither of the Parliamentary Private Secretaries at DFID, of whom I am one, called for my right hon. Friend to stand down. Further to the question of my hon. Friend the Member for Tyne Bridge (Mr. Clelland), does my right hon. Friend agree that anyone who has been in receipt of tax credit or pension credit, or all the other wonderful things that he mentioned, has a vested interest in judging on which side their bread is buttered? If they want their jam today to continue, should they not vote Labour tomorrow?

Tony Blair: My hon. Friend is absolutely right in drawing attention to the combination of tax credits, which give enormous support to families, particularly those with young children, and the extra increases in child benefitchild benefit was frozen under the Conservative Governmentwhich has risen by 25 per cent. in real terms, along with the minimum wage. We did not merely introduce the minimum wage in the teeth of the opposition that was mounted by the Conservatives, but increased it. The combination of tax credits and the minimum wage is making work pay for people. That is one of the reasons why we have 2 million extra people in work. My hon. Friend is absolutely right that there are families that benefit from tax credits, as do pensioners. Without them, they would still be living in the poverty that they experienced under the Conservatives.

Bob Russell: The Prime Minister is probably not aware of the English cultural cleansing caused by Arts Council England's failure to promote England's traditional folk dance and song, nor that the council has spent 5.5 million for an arts facility that will promote contemporary Latin American art. Will he find out what is going on at the Arts Council?

Tony Blair: The hon. Gentleman is right about one thing: I was not aware of it. I was hoping that he might give us a demonstration of English folklore dancing. I will certainly look into the matter and correspond with the hon. Gentleman. Personally, I think that there is a place for both.

Gordon Banks: May I bring my right hon. Friend's attention to an article that appeared in The Times on Monday, in which the hon. Member for Woodspring (Dr. Fox) said that his party risked being
	tilted too much in any one direction, that makes us politically less stable and that makes us less attractive?
	Does my right hon. Friend agree that that thinly veiled attack

Mr. Speaker: Order. That is not a matter for the Prime Minister. The hon. Gentleman should have a word with the hon. Member for Woodspring (Dr. Fox).

Andrew Selous: Motorists who drive dangerously are regularly escaping prosecution through address scams that put them beyond the law. With the Road Safety Bill before Parliament, the Prime Minister could solve the problem now by telling Home Office Ministers to get a grip, protect the public and save lives. Will he do so?

Tony Blair: I will certainly look into the matter that the hon. Gentleman has raised. In principle, I would be deeply in sympathy with him, but I need to find out exactly why that has happened.

Andrew Dismore: Does my right hon. Friend agree that everyone should do their bit to help reduce greenhouse gas emissions? In that context, what advice would he offer to those planning to buy a new car or contemplating a 2,000-mile private jet round trip to publicise the dangers of global warming?

Tony Blair: Everyone makes their contribution in their own way. The point that my hon. Friend makes is right in this sense: if we are to tackle climate change, it is essential that we get international agreement. It is worth pointing out to the House that, as a result of the growth being experienced by China, we estimate that even if we shut down all the emissions in this country, it would take the Chinese economy about 12 months to make up the difference. Of course, we must continue our leadership role on the issue. That is why we will more than meetindeed, we will doubleour Kyoto targets. It is important that we take measures in the United Kingdom, but there is no serious answer to climate change except at an international level.

Andrew Murrison: The community health White Paper published in January this year, at paragraph 6.42, correctly states:
	community facilities should not be lost in response to short-term budgetary pressures,
	yet all four community hospitals in my constituency, plus a 26-bed elderly mentally infirm unit in Trowbridge and our midwife-led midwifery unit are all scheduled for the axe to sort out deficits. Given that the Secretary of State for Health today declined me an audience to discuss the impending disaster facing my constituents in West Wiltshire, will the Prime Minister at least attempt to reconcile the rhetoric in her White Paper with the bitter reality facing my constituents on the ground?

Tony Blair: I cannot comment in detail on the issues in relation to the hon. Gentleman's health care system, though I am happy to correspond with him about that. After all, the West Wiltshire primary care trust funding has increased by 32 per cent. and will increase by 25 per cent. over the next two years. That is an increase of 31 million. I hope the hon. Gentleman understands that, whatever amount of money we put into the health service, PCTs and hospital trusts must live within their means. We need to sort the system out precisely so that the benefits in the White Paper can be achieved for patients. I point out to him, as it would be fair to give the other side of the picture for a little balance, that, in respect of those waiting more than six months for an operation in his area, in 1997 there were almost 12,000, and now the answer is three. That is at least some significant improvement.

Harry Cohen: I raise with the Prime Minister a legacy issuethe Olympics legacy. The Olympics has huge potential to benefit communities in London, especially in east London, where my constituency is. Will he commit the Olympic Delivery Authority to hold talks with local councillors so that projects to boost employment, sports and better lifestyle, skills training and sustainable development for the benefit of communities in London are taken forward?

Tony Blair: I pay tribute to the work that is being done in my hon. Friend's area in respect of the Olympics. He is right to say that there are enormous potential benefits, and I am sure the Olympic Development Authority will be happy to meet local representatives. Two things will happen, beyond doubt. First, thousands of jobs will be created in the area. Secondly, after the games, the athletes' village will be converted into more than 3,500 apartments which will be a mix of social and other housing, particularly for key workers such as teachers and nurses. The London Olympic institute will be sited there as well, so it will be a huge development that brings lasting benefit to the people in my hon. Friend's area and in the whole of London.

Michael Howard: How can the Prime Minister say that every foreign criminal who serves a sentence of imprisonment should be automatically deported, when he knows perfectly well that his own Human Rights Act makes that impossible?

Tony Blair: That is wrong. That is not the reason. Over the time[Interruption.] I am very glad that the right hon. and learned Gentleman got to his feet, because I will remind him of what actually happened when he was Home Secretary. [Interruption.]

Mr. Speaker: Order. Do not shout the Prime Minister down.

Tony Blair: The fact is that before the Human Rights Act[Interruption.]

Mr. Speaker: Order. Mr. Andrew Turner, you keep doing it, but you should not defy the Chair.

Tony Blair: Before the Human Rights Act, the right hon. and learned Gentleman did not deport all foreign prisoners, did he? [Hon. Members: No.] No, exactly, which is my point. This system did not work while he was Home Secretary and has not worked whilst others were Home Secretary, and it is time to change it. But since the right hon. and learned Gentleman got to his feet, let me remind him what we inherited from him. The asylum backlog was 60,000, decisions took 22 months, and the number of removals was one in five. He has about as good a record as a Liberal Democrat would have had.

Deportation and Removals

Charles Clarke: rose

Hon. Members: Resign!

Several hon. Members: rose

Mr. Speaker: Order. I will take points of order after the statement.

Charles Clarke: With permission, Mr. Speaker, I would like to make a statement on the deportation and removal of foreign national prisoners. I will update the House on our progress in considering the cases that I reported last week had been released without proper consideration, and I will set out the facts in relation to the reports on foreign national prisoners and the removal of failed asylum seekers, which my Department received over a period of time. I will also set out the action taken by my Department in response to those reports, including the robust procedures put in place to deal with the very specific issue of consideration of deportation pre-release. Finally I will set out, as promised a week ago at this Dispatch Box, the conclusions I have come to on reforms necessary to the policy framework in which deportations are considered and dealt with.
	Let me begin by confirming, as I set out to the House last week, that as a result of a series of decisions taken earlier this year, including improved management structures, more resources and tightened procedures, we have for the past month had a system to ensure that further cases cannot be missed. That situation will continue to improve as we move over time as a matter of routine to consider for deportation all potential cases a year before they leave prison, or at the beginning of the sentence if that is less.
	Last Friday I wrote to you, Mr. Speaker, to set out our progress in dealing with those cases released without prior consideration of deportation, and I would now like to update the House on the figures that I published then. As of yesterday evening, consideration of all the most serious 79 cases had been completed, with deportation action having been commenced in respect of 70. The remaining nine are cases where deportation action is not being pursued, in accordance with current policy criteria. Of those 70, 32 are now accounted for and either deported or within our control. The immigration service and the police are continuing priority operations to bring the remainder under control. I will not give further details at this stage, as the House will appreciate that my first priority is the efficacy of those operations.
	As I made clear in last Friday's letter, Mr. Speaker, our second priority for consideration is the 103 cases in which, as we stated to the Public Accounts Committee, the type of offence was unknown. Data on these cases is now complete, and I can say that there are 11 of these cases where the original offence was within our category of more serious offences. Consideration for deportation of all but one of these cases has now been completed and deportation action has commenced in respect of seven of them. Since their release, none of these individuals has committed any of the more serious further offences.
	That deals with all the cases where individuals were originally convicted of more serious offences. Of the 1,023 cases in total, consideration has commenced in 574 cases, of which 554 have been completed, with deportation action being pursued in 446 cases. Perhaps I should add that almost all the cases that have so far been given prominence in the media in recent days are not among those upon which I have been reporting to the House, although some do indeed raise important issues of policy.
	Whatever the historic failings, I want to thank all those engaged in the very intensive work that has continued throughout the bank holiday weekend. That has included a major police incident room in Portsmouth, a casework operation in the immigration and nationality directorate in Croydon, work by prison and probation staff, and joint police and IND operations to detain offenders decided for deportation. There is a very high operational commitment to this work, for which I want to express my appreciation.
	From the outset I have acknowledged that there has been a systemic failure within the Home Office, which I regret and for which I have apologised. For example, it was only in 1999 that records on this subject began to be kept at all. However, there have been a number of allegations of inaction by the Home Office in a range of areas over a period of time that have portrayed what I believe to be a false position. I want now to set the record straight.
	There are three distinct issues. The first is the broad issue of the rising number of foreign nationals in our prisonsrising from 5,587 in 2000 to almost 10,000 in 2005 and the policy framework for their deportation. The second is the removal of failed asylum seekers and our action to reach the so-called tipping point. The third is the specific operational question of the backlog of cases.
	The first issuethe overall approach to foreign national prisoners and their deportationwas the one raised over a period of time by respective chief inspectors of prisons. In summary, they have mainly made the argument that the Government were not paying sufficient attention to foreign national prisoners or their human rights, particularly in relation to detention after the end of their sentences. The Home Office has sought to deal with those concerns by a variety of means, which, among other things, led to the deportation of about 3,000 foreign national prisoners in the years 2004 and 2005a figure to compare with atotal foreign national prisoner population of 9,690 prisoners in 2005. Anne Owers, the chief inspector of prisons, acknowledged some progress on that broad issue in her report of 200405.
	The second issuethe removal of failed asylum seekerswas the main focus of the National Audit Office report of July 2005, to which much reference has been made, entitled Returning Failed Asylum Seekers. The overall conclusion of the report was that the prompt departure or removal of unsuccessful asylum applicants should be prioritiseda conclusion that squared exactly with the Home Office prioritisation of asylum in general and, in particular, action to reach the point where more asylum seekers were leaving the country than there were unfounded new applications. That was indeed achieved in February this year and was widely welcomed.
	The NAO report also noted that action on criminal cases was not being initiated early enough to allow preparations for removal to be made pre-release from prison, although the report acknowledged the increase in resources already directed to dealing with such cases. The Home Office immediately responded to the NAO comment. Additional staffing of 90 caseworkers to come on stream from January 2006 was identified, as were a further 2.7 million of resources to come on line from 1 April 2006. Immigration service staff were placed in four London prisons and surgeries were held in 60 prisons, a weekly report on the foreign national prisoner population was initiated, and new arrangements were made to move foreign nationals who had completed their sentence from prison to immigration detention facilities at the rate of about 300 a month. In addition, management arrangements were strengthened.
	The NAO report was the basis for the Public Accounts Committee evidence session on 26 October 2005, which also focused on the issue of the removal of failed asylum seekers. I have already acknowledged the important role played by the Public Accounts Committee in focusing attention on these matters. I also very much welcome the announcement that the Home Affairs Committee will extend its inquiry to cover this matter. The House may recall that I first raised publicly my concern over the broad policy issues raised by the rise in the number of foreign national prisoners in evidence to the Home Affairs Committee on 25 October last year.
	Following the PAC hearing, the Home Office set about collecting and cleansing the data in order that we could report properly to the Committee and take appropriate action on the true size and nature of the backlog. The first report was made to the PAC in November, but closer analysis revealed that the size of the backlog was larger than previously thought and, crucially, that serious offenders were among the backlog. That was reported to me at the end of March 2006, together with plans to recheck the information before it was put into the public domain, to begin casework on the backlog and to work with prisons and probation on the serious cases. The PAC itself published its report on 14 March. It addressed the issue of foreign national prisoners in the body of its report, but it was not in a position to draw firm conclusions or make firm recommendations.
	The rise in the number of foreign nationals in our prisons and the overall policy framework for dealing with issues of their deportation is a long-standing concern about which detailed work has been proceeding for some months in the Home Office. I would now like to report my preliminary conclusions to the House. These are complex and difficult issues, so I will shortly publishbefore the end of Maya consultation paper with specific and detailed proposals from the beginning to the end of the process. The guiding principle will be that foreign nationals guilty of criminality should expect to be deported.
	To achieve that, I will consult in the following areas. First, the data which identify an individual as a foreign national must be captured at the beginning of the criminal justice system, including at the point of arrest and as the case proceeds through the courts. At each stage, there should be sanctions against individuals who give false information on nationality, or indeed no information at all.
	Secondly, it is important to ensure that the issue of deportation is raised throughout the sentencing process. Following recommendations from the sentencing advisory panel, the Sentencing Guidelines Council will shortly be publishing draft guidelines to set clear criteria according to which judges should make deportation recommendations when sentencing.
	Thirdly, we need to deport prisoners at an earlier stage in their sentence. Ideally, prisoners should serve their sentence in full in their home country. The UK currently has prisoner transfer agreements with more than 90 countries, and we have recently ratified an agreement with India and other such agreements are awaiting ratification. Within the European Union, we are strongly supporting the efforts of the Austrian presidency to secure a directive which will enable the repatriation of prisoners within the EU without requiring the consent of the prisoner. In addition, the Criminal Justice Act 2003 introduced arrangements to consider whether prisoners should be deported before the end of the sentence, and we will consult upon proposals to enable this to happen earlier in a prisoner's sentence.
	Fourthly, I want to make it clear that the Government not only intend to ensure that the current system operates effectively, but seek after consultation to extend the categories of offenders who are considered for deportation. We will therefore publish proposals to consider for deportation a wider range of offenders.
	I want to state clearly that where deportation can properly be considered, the clear presumption should be that deportation will follow unless there are special circumstances why it cannot. We will consult on whether that presumption should be made statutory through primary legislation. Such a presumption would include all criminals sentenced to imprisonment, all those convicted for an offence listed in an order under section 72 of the Nationality, Immigration and Asylum Act 2002, all those on the sex offenders register, repeat offenders and, of course, all those recommended for deportation by the sentencing judge. We believe that there is a strong case for extending those proposals to any individual who is convicted of an imprisonable offence, whether or not a sentence of imprisonment was actually given, and we will consult on that too.
	Those proposals would replace the current practice of considering for deportation only non-European economic area nationals with a sentence of 12 months or more; EEA nationals with a sentence of 24 months or more; cases in which the individual has three lesser convictions in a five-year period; and all cases in which the sentencing judge has recommended deportation.
	Finally, in relation to our policy framework, I have already said that we are now ensuring that all deportation decisions are being taken before an individual is released. That will continue, but I will also consult on the following steps to ensure effective implementation of deportation and removal decisions: the full use of the less burdensome process of administrative removal rather than deportation in eligible cases where individuals have no or limited leave to remain; more effective procedures in relation to psychiatric hospitals; a new power in primary legislation to enable us to detain an individual pending consideration whether they should be deported or removed as a result of their criminal conviction; amending primary legislation so that deportation appeals, save for those raising asylum or human rights issues that are not clearly unfounded, are heard after the individual has been deported from the UK; and the introduction of an automatic bar on return for all those who are subject to administrative removal due to criminality, which is already the case with those who are deported.
	I should add that I will also consult on proposals to achieve a more coherent approach to taking criminality into account in decisions on who is allowed into the country, who is allowed to stay, who is granted settlement and who can acquire British citizenship. These are significant proposals which, as I said earlier, we have been preparing for some months[Hon. Members: Oh!] We have. They will, I am sure, also be controversial, but I hope that, unlike with some previous legislation in this area, we can rely on the full-hearted support of both the main Opposition parties in ensuring that foreign nationals who commit crimes are deported rapidly to the countries from which they come.
	This has been an unedifying episode for all of us in the Home Office who are charged with the protection of the public[Interruption.] Yes, it has. But I said that I would stay and put the situation right. I have set out the results of the intensive work that is being done by the agencies to deal with the outstanding cases. I have set out the steps taken to improve our systems on foreign national prisoners, including robust procedures that now mean that the appropriate processes are in place, and I have set out my proposals to deport more offenders, more quickly. I commend the statement to the House.

David Davis: The first duty of Government is to protect the public, and the Government have failed in that duty in a most appalling fashion. They have done so, not by failing to identify suspected criminalsalthough they have done thatand not by failing to catch criminals, but by releasing over 1,000 criminals from their own prisons without consideration. Ministers have lost control of their Departments and they have introduced a new doctrine of ministerial responsibilitythe bigger one's mistake, the more one deserves to stay in one's job. The Home Secretary has tried to make a virtue of the fact that he has told us the facts[Interruption.]

Mr. Speaker: Order. Mr. Ronnie Campbell, I know it is difficult for you, but perhaps you could be quiet for a while.

David Davis: Thank you, Mr. Speaker. The Home Secretary tried to make a virtue of the fact that he has told us the facts. In truth, however, he was forced by the Public Accounts Committee to admit to his failure and he was dragged to the House to answer for it, both last week and today. We now know that he did not even tell the Prime Ministerwho, I see, is giving his usual support. Last week I asked the Home Secretary four questions; he answered none of them.

Mike Hall: My right hon. Friend answered them all.

David Davis: The Home Secretary answered none. He said that he would answer them by the end of the week, but he still had not answered any of them by then. This week I shall ask him eight questions, and the House, and the public, will expect eight answers. Before I do so, however, let me say that of course I applaud any action that will address the problem, although much of it amounts to bolting the prison door after the prisoners have fled.
	I understand that the Home Secretary intends to introduce new powers to create a presumption of deportation for foreign criminals. I applaud that intention, but[Interruption.] In answer to the Government Chief Whip's sub-vocal heckle, may I remind her of the powers that the Home Secretary already has? The Immigration Act 1971 gives him explicit powers to deport any non-British citizen under section 3(5) if he
	deems . . . deportation to be conducive to the public good.
	Laws are fine, but the public require competent action.
	Let me turn to my questions. First, there is the length of time that it took the Home Secretary to alert the police to the problem. He and his predecessors were warned several times, as he has now admitted, by Her Majesty's chief inspector of prisons and by some police forces, of the growing magnitude of the problem of foreign criminals being released rather than deported. The Home Secretary was warned again by the National Audit Office on 14 July last year. Can he tell the House precisely why he did not take action 10 months ago? Why did he not do 10 months ago what he did last week? At least 400 criminals identified in the Home Office's first submission to the Public Accounts Committee could have been arrested and deported. If, for some inexplicable reason, he was unable to act 10 months ago, why did he not act one month ago, when he had a full list available? Why did he tell the press about the problem before he told the police, giving more than 1,000 criminals the chance to disappear before the police could catch them?
	We are told that from last July, procedures were implemented to increase the number of staff and the resourcing of the unit concerned, and that there is now a proper case management systemI think that I quote exactly. So can the Home Secretary explain why we hear persistent reports that that department is understaffed, undertrained, and largely manned by temporaries? Is not the truth that whatever he did it was ineffective, as the rate of release of foreign prisoners into the community went up after July? Is that acceleration in the release of potentially dangerous criminals into the community not a clear demonstration of his own failure?
	The Home Secretary cannot even give us what he promised last weekthe full number of crimes committed by the 1,000-plus criminals since their release. Civitas, the respected Home Affairs think-tank, whose director is a member of the Home Secretary's own Statistics Commission, estimates the likely number of convictionsnot crimesfor the 1,000 criminals at about 700. That is 700 crimes as a result of this failure. And the Home Secretary did not tell us how many crimes were committed by the 288 criminals released after he was explicitly told about the problemthe criminals who are absolutely and inescapably his own responsibility. Civitas estimates that they would have been convicted for 100 crimes committed within six months of release.
	On Friday, the Home Secretary told us that of the 79 foreign criminals he considered to have committed serious offences, deportation action had been started on 70. But only 32 of those 70 have been located. That means that 38 are not in his control, presumably because he warned them through the press three days before. So, even on his own figures he is failing in more than half the cases.
	The Home Secretary should not forget that 1,023 foreign criminals are at issue here. He has just told us that deportation is being pursued in 446 cases. Will he tell us how many of those are within police control? When the Home Office completes the deportation exercise, how many of these 1,000 foreign criminals will remain at large in the United Kingdom?
	I am concerned that those 1,000 are just the beginning of the problem. With almost every day that passes, we hear of a new failure. This morning's papers are full of the story of the suspect in the tragic murder of WPC Sharon Beshenivsky. I do not expect the Home Secretary to comment on that case, and I will be very careful. As I understand it, the suspect was given indefinite leave to remain in 2000. In the subsequent five years he was convicted of three offences and sentenced to three separate prison terms. Yet in March 2005 the Home Office decided not to deport him to Somalia, even though, a year earlier, the Home Office's operational guidance note on Somalia said:
	there is no longer any policy that precludes the return to any region of Somalia.
	In the past two years, the Home Secretary's office has made more than 2,000 decisions against deportation. I have to ask him, in the light of this and many other examples: is he comfortable that those decisions were made with sufficient regard for the safety of the British public?
	Last week, a whole new category of cases was raised by Lord Ramsbotham, the previous chief inspector of prisonsthat of 1,500 prisoners who have no nationality record, or a false record. How many people in that category have been released into the community without consideration for deportation in the past seven years? Again, is the Home Secretary persuaded that this oversight has not unnecessarily jeopardised the safety of the British public?
	Finally[Hon. Members: Hooray!] Labour Members will not be happy about this either, because it is not amusing. Last week one of the murderers of Mary-Ann Leneghan was sentenced to more than 20 years in prison. He had been recommended for deportation on his 18th birthday, but was not deported and was involved in this hideous crime just a few months later. This raises a whole new category of people who are recommended for deportation but who are not, for one reason or another, imprisoned. Can the Home Secretary give us an indication of the size of that category and whether he has considered policy with regard to such people, as clearly some represent an unnecessary risk to the public.
	Together, those groups represent several thousand people who are a potential risk to the public and should be considered for deportation. It may therefore be that the 1,000 whom the Home Secretary says he has already considered are just the tip of the iceberg. Has he considered these categories in detail and what he might do to minimise the risk to the public? Whatever his answer, I would like to know why he has not done anything to deal with these potentially serious risks to public safety. There are two possibilities: either the Home Secretary did not know about these problems, and was therefore negligent, or he did know but did nothing effective about them, and was therefore incompetent. The answer is not simply more laws, and it is certainly not just more headlines. The answer is a more competent Home Secretaryand that is the very least the British public deserves.

Charles Clarke: The right hon. Gentleman raised several points

Chris Ruane: Twenty-nine.

Charles Clarke: I do not think that it was 29, but I am interested to hear that that is the number that my hon. Friend was able to identify.
	First, I paid tribute last Wednesday, and I will again, to the role of the Public Accounts Committee in this process. It has been a positive process, and that is what the PAC should do. Secondly, in answer to the right hon. Gentleman's question about what I did about the National Audit Office report last July, I have already clearly set out the whole series of measures that I took to deal with its recommendations and to improve our performance in that area. Moving on to his third point, I am the first to concede that there remain issues about implementing that in the most effective way. I do not accept his stricture that the IND, or the Home Office in general, is understaffed, undertrained and so on, but I do think that there is a serious point about way in which we organise ourselves in those areas. We are changing that as a result of the NAO report and other things, precisely in order to address those issues.
	On what the right hon. Gentleman calls the accelerating procedure of failure, the reason for those figures, as my right hon. Friend the Prime Minister said a moment ago at Prime Minister's questions, is that as a result of the NAO proposals we sent immigration officers into prisons, tightened the procedure, identified more problems to take up, and solved more problems. The problem isI have to be straight about thisthat if one tries to sort out these problems, one turns up more problems. That is the situation that must be candidly addressed.
	As for the right hon. Gentleman's friend from Civitas, perhaps I could remind him that, as he knows very well, in an attempt to get all-party agreement about the way in which crime statistics are dealt with, I invited him to nominate individuals to a panel to review that matter. The gentleman concerned was duly nominated by the right hon. Gentleman, and I appointed him because I wanted some consensus, so of course I am interested in his views on all these matters.
	On the question of the people whom the police and the immigration service are still pursuing, I am not, as I said in my statement, going to give a moment-by-moment update on that, but I believe that they are making extremely good progress as a result of the situation that I set out.
	Finally, I come to the list of cases that the right hon. Gentleman raised, including the person allegedly involved in the murder of Sharon Beshenivsky, the cases raised by Lord Ramsbotham, and the case involving the killers of Mary-Ann Leneghan. Those are very serious cases. As the right hon. Gentleman acknowledges, they are not among the 1,000 that we are talking about, but as he also acknowledges, they raise precisely the questions that it is right for us to address in deciding how we deport more effectively people who are guilty of criminality. It is no good the right hon. Gentleman saying that we do not need more laws or more procedures, that it is all hunky-dory and the problems are simply down to poor administration. We need more laws so that we carry matters through properly and I hope that, this time, he will support the proposals.

Nicholas Clegg: The Home Secretary predictably showered the House with a volley of new figures and statistics. We will scrutinise those new figures with the attention that they deserve. We already know from the figures released at the end of last Friday that they pose as many questions as they provide answers.
	For example, why has the Home Secretary not explained to us how he compiled the figures and what definition he used to conclude that only 79 cases related to serious offences? He claims today that, of those 79, deportation action has commenced for 70, but he went on to say that 38 of the 70 have not been accounted for. How can one proceed with deportation action for the 70 most grave offenders if one does not knowor appear to knowwhere 38 of them are? We need answers to those questions for the statistics that he provided today to have any credibility.
	The Home Secretary has announced new primary legislation. Let us be clear: the current fiasco did not arise because of an absence of legislation or a lack of rules. Yesterday, we found an 86-page document from the Prison Service that provides forensic guidance on how to consider the deportation of non-British offenders. The fiasco did not arise because of a lack of powers enjoyed by the Home Secretary; he already enjoys wide discretion to remove anyone who is deemed not be conducive to the public good. Since 1997, the Government have introduced up to 36 new laws and hundreds and hundreds of new offences. Surely he acknowledges that placing yet more pressure on an overburdened criminal justice system through new rules and laws devised in the panic of the current fiasco might prove little more than a cosmetic solution.
	We will consider positively any measures necessary to deport those who should and can be deported more quickly than at present, and especially the measures that the Home Secretary outlined to encourage offenders to serve their sentences in their home countries once convicted here. However, we will not welcome the measures if they prove, on further reflection and analysis, to be a knee-jerk reaction, designed to grab headlines rather than offenders and to help the Government out of a self-inflicted fiasco.
	Our prisons are grotesquely overcrowded. The probation service is demoralised and under-resourced. The Government are at permanent loggerheads with the judiciary and reoffending rates, which have a direct bearing on what we are considering, are among the highest in the western world, with up to 70 per cent. of young offenders offending again within two years of release from prison. The Government have presided over lamentably low conviction rates for some of the most serious crimes imaginable, such as rape.
	Surely the Home Secretary should start getting a grip on the Government's woeful mismanagement of the criminal justice system rather than indulging in rushed, new legislation in response to recent events. Our focus will remain on the serial incompetence of a system in which the basic rules to examine every case for deportation simply did not operate. The Home Secretary should take political responsibility for that incompetence. He has said nothing today to suggest that Ministers were anything other than neglectful in failing to tackle such grave issues until they were shamed into doing so in recent days. He should do the decent thingwe know that he has done it beforeand ask the Prime Minister to release him from his predicament and allow him to resign today.

Charles Clarke: First, when I stated that 70 people had been approved for deportation and procedures were going ahead in those cases, that is true and the police are working on it, as I reported to the House. Secondly, I have not sought in any way to hide the fact that the Home Office made serious mistakes. I said that last week, I say it this week and I continue to assert it. As I said in the statement, I believe that several positive things have happened side by side with that mistake and it not right for the hon. Gentleman to say that I did not set them out. We have made significant progress on several matters.
	The hon. Gentleman needs to grasp a key point when he speaks about considering the legislative position. In every deportation case, a battle goes on between the individual to be deported and the state that seeks to deport. The battle takes place in the courts, with a series of judgments appealed through a long procedure. That is the law of the land, as it is entitled to be. HoweverI stress this in the strongest termsthe battle about case after case, occasionally with important judgments, such as the Chindamo judgment, going against the Government, is a key factor in any Government's ability to act decisively. That is why I say that our response must be to go back to the basics, and make a presumption that non-British criminals should be deported. That is what we will set out. The challenge for the hon. Gentleman and his colleagues in the House and the other place is whether they are prepared to sign up to that principle.

John Denham: Following my right hon. Friend's comments, does he agree that one of the most unsatisfactory parts of the current law that has been revealed in the past few days is the way in which it requires Home Office officials to judge not only what is in the public interest, but the chance of defending a particular case against a subsequent court challenge? Does not that produce a deeply unsatisfactory and inexplicable position for our constituents, whereby it appears that Home Office officials have simply decided not to deport somebody who then commits a serious offence? Is not the great advantage of a presumption in favour of deportation not simply that we will not have future backlogs but that the House can say what it wants to happen on behalf of our constituents, and it will be clear when the courts decide in an individual case that such action should not follow?

Charles Clarke: My right hon. Friend is correct. I pay tribute to him and the Select Committee that he chairs because it decided a good while backpartly, I am sure, in response to the NAO report, but also for other reasonsto go through the detailed workings of the immigration and asylum system. It did not simply take evidence in the House but considered the current procedures, and so it should because our approach should be scrutinised, precisely for the reason that my right hon. Friend gave. That is why I welcome the Select Committee's decision to widen its terms of reference to include the management of foreign national prisoners. That is important. My right hon. Friend is correct and I hope that the Select Committee will make recommendations to that effect and that the House will listen to them.

Iain Duncan Smith: Listening to the Home Secretary, I am sure that I am not alone in smelling a rat. Again, when a problem arises, a member of the Government comes to the House, denies responsibility and says, Here's another tonne of legislation, which we will lay on the problem to resolve it. The courts have made it clear that the Home Secretary retains the absolute right to make the decision to deport somebody and they will not gainsay him on that. The idea that the proposed presumption will suddenly change that practice is nonsense.
	The Home Secretary misses another point, too. What will he do about those whom he cannot deport? Will they simply wander the country because he could not deport them simply because they could not get a flight?

Charles Clarke: I have done the opposite of denying responsibility for the matter. From the beginning, I acknowledged my responsibility for the mistakes that have been made. It is fair to say that I have also sought credit for the positive changes that we have made side by side with the mistakes, but I accept responsibility completely and categorically, and I do not believe that the right hon. Gentleman has the right to say that I have not done so.
	On the right hon. Gentleman's fundamental point about how we deal with deportations, he knows from his extensive experience how difficult such issues are. It is not simply a matter of being unable to find a plane. There are access and logistical problems but, as he well knows, there is also a range of other different issues to consider.
	I dealt with that specific question in the statement. I said that, in cases in which we cannot deport, we should consider primary legislation to extend our powers. That possibility will be tackled in the consultation paper.

Julian Lewis: Like control orders.

Charles Clarke: No, not like control orders. The hon. Gentleman should face a fact: we have the power to keep in prison those who have committed offences until the end of their sentence; we have the power to keep under immigration detention those whom we have a realistic prospect of deporting, but we do not have the power, on my say-so or anybody else's, to keep people in prison because we feel like it because of the risk that they might pose. That is the dilemma and the problem. It is why we need to consider new legislation and ascertain how to deal with the matter.

Gerald Kaufman: My right hon. Friend referred in his statement to the removal of failed asylum seekers. The hon. Member for Sheffield, Hallam (Mr. Clegg) referred in his question to the fact that there was already legislation on the statute book to deal with such cases. Why did my right hon. Friend, in responding to the hon. Gentleman, fail to refer to the case of the failed asylum seeker in Manchester who stood in the council elections as a Liberal Democrat candidate and was elected? He returned to the country from which he claimed he had been seeking asylum to attend a wedding, and remains in this country now only because he benefited from an amnesty granted by my right hon. Friend's predecessor.

Charles Clarke: The short answer is that that is a result of my natural generosity of spirit, which I try to show at all times to the Liberal Democrats as I cannot give them any other support.
	My right hon. Friend was the first Member of Parliament to visit me on the day I was appointed Home Secretary. He took me to his constituency officejust off the Lobbyto show me the filing cabinets full of constituents' cases that had not been properly dealt with by the system that was in place at the time, and about which he had made representations. He said to me, You've got to get this sorted out, or words to that effect. He was right. The point that he made was that the problem went back over a long period, well into the term of the previous Conservative Administration. That is what we are trying to put right, and I am determined to achieve that.

Anne Main: Last week, I asked the Home Secretary whether the people who had committed serious sexual offences were put on the sex offenders register before they were released, as that was vital for maintaining confidence that the register could help our local police forces. His reply was:
	I assure the hon. Lady that precisely the same procedures on the sex offenders register applied to the foreign nationals whom she has described as apply to anybody who commits a sex offence. [Official Report, 26 April 2006; Vol. 445, c. 588.]
	If that is the case, how come senior police officers have said recently in the national press that there are serious offenders, including sex offenders, of whom they have no details whatever? Will the Secretary of State fill me in on whether he feels his statement last week reflected the true situation?

Charles Clarke: I am not sure to which statement the hon. Lady is referring, but I do not believe that those views are right. The police have been intimately involved in this approach through their national command centre in Portsmouth, and they have dealt with a large number of issues through the police national computer. I do not think that the specific remarks that the hon. Lady reports are correct, but perhaps she could drop me a note with their particulars, and I will answer them in detail.

Ann Cryer: Sharon Beshenivsky lived at Hainworth, in my constituency, until her murder. My colleagues from Bradford and I attended her funeral at Bradford cathedral. Does my right hon. Friend agree that the most precious of human rights is the right to life itself? I welcome his comments, and I am impressed that we seem to be moving in the right direction. The Prime Minister also commented just now on overhauling the system and changing the rules. If we are, as my right hon. Friend the Member for Southampton, Itchen (Mr. Denham) mentioned, to have a presumption in favour of deportation, would Mustaf Jamathe prime suspect in Sharon's murderbe capable of being deported if he were to come before the people who discuss deportations? Given the changes that are to be introduced, would he now be capable of being deported? Will my right hon. Friend also comment on the letter that the Leader of the Opposition waved at us earlier when he was talking about prisoners switching to become asylum seekers before they were deported? I had understood that we had put an absolute stop to that switching.

Charles Clarke: I pay tribute to my hon. Friend for taking up the case of her former constituent. She and I discussed the matter yesterday after the press reporting of the situation. I cannot confirm that any legislation will have a particular impact on any individual caseI am not going to comment on specific circumstancesbut I can say that the whole intent of the legislation is to change the balance of assumption in favour of the rights of people who want to avoid having crimes committed against them, rather than the rights of individual criminals. That is what we are proposing, and that is what I think should happen.
	On my hon. Friend's final point, I will examine the case that she mentioned, and I am sure that the Leader of the Opposition will let me have a copy of the letter that he was brandishing in the House today. I will respond in detail to my hon. Friend on that point, but I believe that steps have already been taken to deal with those matters.

William McCrea: Do the Home Secretary, the Home Office and the police know where all the dangerous foreign national criminals are? If they do not know where they are, how will they remove or deport them?

Charles Clarke: As I have said, the police are pursuing all of them on the basis of the extensive intelligence and data that we have about all of those individuals.

Marsha Singh: Can my right hon. Friend understand the anger of my constituents in Bradford, and of people in general, when they discovered that one of the people wanted in connection with the murder of Sharon Beshenivsky was a convicted criminal and a foreign national who had not been recommended, even in principle, for deportation? Why was he not recommended even in principle? Who are these people who cannot see right from wrong? Why was this man not tracked? I welcome much of my right hon. Friend's statement today, but he himself has talked about the systemic failures in the Home Office. How can we have any faith that the new measures will not end up in the same shambles as the previous ones?

Charles Clarke: I certainly can understand the anger that my hon. Friend describes. He and I also discussed this matter yesterday. I hope that he will acknowledge that the case to which he refers was not one of the specific cases that we have been talking about. As I said yesterday, however, and I say to the House today, it does raise precisely the kind of general questions that my hon. Friend has raised. That is why we need the type of legislative change that I have described. However, my hon. Friend is right to suggest that, after the failures in the Home Office's handling of these matters, we have to win back people's confidence in our capacity to deal with them. I hope that, when he considers those failures, he will set them side by side with our successes, and acknowledge that both have to keep moving forward in a strongly positive direction.

Michael Howard: The Home Secretary will be aware that the language that he has used about the removal of these prisoners was very different from the language used by the Prime Minister just a few minutes earlier from the same Dispatch Box. The Prime Minister said that these criminals would automatically be deported. The Home Secretary says that they can expect to be deported unless there are circumstances that would make it inappropriate to do so. Will the Home Secretary now acknowledge that what the Prime Minister said was wrong, and that the Prime Minister was, as usual, using language that he thought would make an effective soundbite, but which was a considerable distance away from the truth?

Charles Clarke: No, I will not. I do not believe that there was the distinction in language that the right hon. and learned Gentleman has made. If we are being candid about these matters, we should look back to the time during the previous Conservative Government, before he was Home Secretary, when the noble Lord Ferrers said in answer to a question that, of a total sentenced population of 34,000 in December 1991, about 2,600 were known to be foreign nationals, and that the nationality of a further 5,900a fifth of the prison populationwas not recorded. That was the state of affairs that we had to deal with, and it is what we are now putting right.

Kali Mountford: On the subject of soundbites, will my right hon. Friend guard against the soundbitesthe murmurings about meltdownthat I have heard from Opposition Members? Will he also guard against calls for action from a party that, while it was in power, took no action whatever, collected no figures and cut 2,000 Home Office jobs? I congratulate my right hon. Friend on his announcement today. When he is considering what the House should do next about this problem, will he balance the need to protect our constituents from those who wish them harm against ensuring that the people who come here to make a proper contribution to our economy and our culture still feel welcome to do so?

Charles Clarke: My hon. Friend is absolutely right. I am particularly glad that she made reference in the final part of her question to the need to strengthen the cohesion of communities in this country. That is an important and genuine requirement to consider as we balance the issues that are being debated today. I can assure her that the cohesion of communities up and down the country, including her constituency, will be a central consideration for me as we take forward the legislation.

Pete Wishart: Following last week's statement, the Home Secretary was kind enough to write to tell me that one of the 79 most dangerous foreign nationals was resident in Scotland. Can he tell me how many of the 1,023 are currently in Scotland? What possible excuse can he give for not notifying the Scottish Executive, the Scottish Prison Service and Scottish police forces when he knew about the difficulties in his Department? Why did he not tell them in time so that something could have been done to ensure that Scottish communities were safer and more secure?

Charles Clarke: As I said in my statement, I am not in a position to give full information about the 1,000 at this stage. I will do so when I can. On the hon. Gentleman's other question, I dealt with that in the answer that I sent to him, and I will continue to work closely with the Scottish Executive and others to ensure that we bring those matters under control.

Terry Rooney: My right hon. Friend has referred to WPC Sharon Beshenivsky. What checks are made by the Prison Service and the immigration and nationality directorate on prisoners' claimed nationality? Where removal is not possible, is administrative detention ever considered? What conditions, such as tagging, are applied on release to people who cannot be deported?

Charles Clarke: On the hon. Gentleman's second point, yes, we deal with administrative detention. On his third point about tagging, we are looking to extend the ability to use that. As I said to the former Leader of the Opposition, the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), there are serious issues about our legal powers in those circumstances, which is why I called for further consideration. On his first point, he puts his finger on a critical difficulty in this procedure. Many people come into this country having destroyed all their documents and make fraudulent and untrue claims about their nationality. In those cases, it is often extremely difficult to identify the genuine nationality of those concerned. If we do not know which country individuals come from, it is extremely difficult to know where to deport them to. That is a major issue in immigration, and we have done tremendous work in developing the e-borders regime, which tries to identify people more effectively before they enter this country. I will be candid with my hon. Friend, however, that that also raises serious questions, because there are people whose nationality cannot be identified at the outset, which is one of the serious problems that we have had in providing the data that the Public Accounts Committee and the House would wish for.

Richard Bacon: When the Home Secretary wrote to you last Friday, Mr. Speaker, he said that 79 of the prisoners were originally in prison for more serious offences and 13 had committed the most serious offences, by which he meant murder, manslaughter, rape and child sexual offences. If we look at his letter to the PAC last Tuesday, however, we see that three had been in prison for murder, two for manslaughter, nine for rape and five for sexual offences involving minors, making a total of 19, not 13. Can the Home Secretary clear that up? Was he being inaccurate on Tuesday or on Friday, or is there some other explanation? Can he explain

Mr. Speaker: Order. One supplementary is fine.

Charles Clarke: I will write to the hon. Gentleman and the PAC about his specific question about the relationship between the issues. As he says, however, it is true that the definitions in each of the cases have not always been entirely straightforward. That is why the situation has arisen with the numbers. The best way to deal with that is to write to him and the PAC.

Chris Mullin: Will my right hon. Friend confirm that because Somalia has entirely disintegrated it has not been possible for many years, including when the Conservatives were in office, to deport anyone to that country, short of taking them up in an aeroplane over Mogadishu and dropping them out with   a parachute? Does he therefore agree that it is entirely fancifulindeed, hypocriticalfor Conservative Members and their friends in the media to pretend otherwise?

Charles Clarke: My hon. Friend is correct. That has been more of a difficulty with that country than with just about any other country in the world. It is possible to imagine voluntary return in certain circumstances, which has been achieved in a small number of cases. More generally, however, it has not been possible to proceed for precisely the reasons that he gives.

Philip Davies: Following the points raised by the hon. Members for Keighley (Mrs. Cryer), for Bradford, West (Mr. Singh) and for Bradford, North (Mr. Rooney), will the Home Secretary take the opportunity to apologise to the family of WPC Beshenivsky and the people of Bradford for the fact that the main suspect in her murder was allowed to wander the streets when he should have been deported? Will he answer the question that many people in Bradford are asking at the moment: why do he and this Government give more credence to the human rights of foreign criminals than to those of police officers and the general public in this country?

Charles Clarke: I do not have anything to add to what I have said previously to MPs from that locality.

Robert Flello: I also welcome the announcement from my right hon. Friend. Many constituents have asked me in recent weeks why foreign nationals who have committed offences and effectively outstayed their welcome by their actions have not been automatically deported. On the serious matter of the countries to which, for whatever reason, people cannot be deported, will he consider issuing a list making public the countries to which it is difficult to deport people? When people finish their sentences, what are we doing to make sure that they are detained? Finally

Mr. Speaker: Order. I tell the hon. Gentleman and other Members that one supplementary is fine. I think that he managed two, but one is fine.

Charles Clarke: I certainly will consider my hon. Friend's proposals. Let me highlight one problem: in the case ofZimbabwe, which has many difficulties, the Government are subject to consistent calls, including from the Opposition, not to deport anyone to that country in any circumstances. We are also under a duty to examine the circumstances of the individuals concerned and the threat that they face. My hon. Friend illustrates the serious issue at the core of how we deal with those questions. All that I ask for is consistency from Opposition parties in addressing those questions, rather than one day saying, What about the rights of asylum seekers? and the next day saying that they cannot be allowed into the country.

Humfrey Malins: Is it not the case that a foreign prisoner due to be deported still retains a right to make a claim to stay under the Human Rights Act 1998? If that is the case, what will happen to that foreign prisoner making a claim under that Act during the course of proceedings? Will he or she be on bail or in custody, and under which provision?

Charles Clarke: Actually, that is the position with regard to such a prisoner's human rights under the European convention on human rights rather than specifically under the Human Rights Act. Any individual might or might not have a claim under the European convention on human rights, which I think, from memory, this country signed up to in 1951. That claim has to be duly considered by the courts, whether the person concerned is on bail or in prison, in whatever circumstances apply. The issue that I raiseI do not know whether the hon. Gentleman, with his great legal experience, will agreeis that we must be more ruthless about examining the actual circumstances of such people. That is why I say that we should have a presumption that someone who has committed a criminal act should be deported to the country from which they come.

Peter Kilfoyle: I welcome my right hon. Friend's proposals to deal with the systemic failures that he has honestly put before the House today. Will he assure me, however, that he will take no strictures from the former Home Secretary, the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), whose woeful personal misjudgment allowed two of the biggest drug dealers in the United Kingdom out of prison?

Charles Clarke: I certainly will not take strictures from the former Home Secretary, whom I regard as the one person in the House who is not equipped to make comment on these issues. I will not comment on the allegations made by my hon. Friend, although I am aware of them and understand the force with which he makes them.

David Howarth: Can the Home Secretary say how many of the 1,023 cases would have resulted in deportations had the new legislation that he proposes been in place?

Charles Clarke: No, I cannot.

Adrian Bailey: I thank my right hon. Friend for his statement and welcome his proposals. Given that this whole sorry outcome is the result of systemic failures in the Home Office going back to the 1990s, can he tell me how many foreign nationals who either have been deported or are being considered for deportation are repeat offenders whose original offences were carried out prior to this Government's introduction of measures to identify and record the number of foreign nationals in prison?

Charles Clarke: I cannot give my hon. Friend the number to which he refers, but I can say that he is right: there are individuals who go back over a long period in precisely the way that he describes.

Julian Lewis: To his credit, the Home Secretary tried to deport several very dangerous suspected al-Qaeda organisers, only to run up against the human rights legislation that had been signed up to or enacted by his Government. It is clear from his statement today that the same would happen in relation to people claiming asylum from countries with repressive regimes. Did the Home Secretary discuss that issue with the Prime Minister before the Prime Minister came to the House today? If he did, how was it possible for the Prime Minister to say that these people would automatically be deported under the new rules, when hethe Home Secretaryhas made it perfectly clear that they could not be?

Charles Clarke: I have already dealt with the substance of the question, but let me make a specific point. Yes, I have frequently discussed with the Prime Minister the question of the operation of the European convention on human rights, and the fact that it impacts in a number of different ways. As far as I know, the Opposition still believe that we should be signed up to the convention, but if I am wrong about that, I should be interested to hear it.

Michael Fabricant: Get on with it!

Charles Clarke: I am getting on with it, and I am trying to do so in such a way that even the hon. Gentleman may be able to understand.

Michael Fabricant: Patronising!

Charles Clarke: Yes, I am patronising.
	The fact is that that issue remains a central one, at the core of the whole discussion. I appeal to the right hon. Member for Haltemprice and Howden (David Davis) and the spokespeople for the other Opposition parties to address the matter honestly in that discussion, on the basis of the presumption that criminals should be deported.

Points of Order

Madeleine Moon: On a point of order, Mr. Speaker. As a new Member, may I ask for your guidance on whether the usual courtesies should have applied when the hon. Member for Chesham and Amersham (Mrs. Gillan) visited my constituency recently? I saw plenty of press coverage of her visit to Wales's premier seaside resort, but found no notification to my office, either here or in my constituency, that the visit was about to take place. Do such conventions still apply, and should they have applied in my case?

Several hon. Members: rose

Mr. Speaker: Order. Let me answer.
	I do not want to become involved in any arguments between Members on these matters, but the convention does apply. What an hon. Member must do is notify the constituency Member. I stress the word notify: the person concerned does not need permission to enter the constituency.

Cheryl Gillan: Further to that point of order, Mr. Speaker. It may please you to know that there are standing orders in my office to inform hon. Members when I visit their constituencies. In this instance I made an inquiry, and found that both a letter and an e-mail had been sent to the hon. Member for Bridgend (Mrs. Moon). I apologise if neither reached her. I shall make inquiries of our locator system in the House, which is run by whereonearth.combecause I want to know where on earth my message went. I do apologise.

Mr. Speaker: There is an apology, then.

Stephen Pound: On a point of order, Mr. Speaker. I was surprised to read in column 835 of Hansard for 2 May that an hon. Ladyand she is a lady of honour: the hon. Member for Bromsgrove (Miss Kirkbride)had named me personally, and stated in the House that I was demanding the resignation of a senior Cabinet Minister. What corrective avenues, Mr. Speaker, are open to a Member who is able categorically and unequivocally to deny having made any such statement and would not make any such statement, before further damage to fraternal relations with senior colleagues and to my personal career prospectswhich, admittedly, were fairly slim to start with?

Mr. Speaker: The hon. Gentleman has put the record straight, and perhaps next time he appears on Sky television he will be able to do so again.

John Hayes: On a point of order, Mr. Speaker. I fear that Members may have been inadvertently misled about the Home Secretary's offer to resign. Speaking of an exchange with the Prime Minister, the Home Secretary said:
	I told him I was prepared to resign if he thought it was right. He said he didn't think it was right.
	Subsequently, we have been told that the Home Secretary did not offer to resign. I wonder what avenue I can explore as a Member of Parliament to ensure that hon. Members are fully informed on this matter in what I think you will agree, Mr. Speaker, is a national crisis over prisoner releases.

Mr. Speaker: The best thing to do is not to draw the Speaker into such arguments.

Neighbourhood Policing

Andrew Slaughter: I beg to move,
	That leave be given to bring in a Bill to require police services to include proposals to introduce and sustain neighbourhood policing as a provision of their policing plans; and for connected purposes.
	Let me say immediately that if police services in England and Wales continue to respond positively to the Government's agenda on neighbourhood policing, my Bill will only gather dust. Most if not all forces have responded with professionalism and enthusiasm to the aims set out in a string of White Papers and Government Bills since 1997.
	I shall largely confine my remarks to the Metropolitan area, which I believe has led the way in neighbourhood policing. Both the current commissioner and the Mayor deserve praise for not only supporting but implementing the provision of safer neighbourhood teams across London, which Sir Ian Blair has called
	the greatest development in community policing in the last 40 years.
	While both Sir Ian and Mr. Livingstone are uncontroversial characters who will no doubt stay in their respective posts for many years to come, should they for any reason move on, I would like to think that their legacy in community policing will be preserved. I also hope that the many local initiativesnot just in Londonthat are improving community safety can be introduced nationwide to continue the Government's exemplary record in cutting crime and antisocial behaviour. Those are the objects of my Bill.
	The purpose of this speech is not to rehearse the details of the statutory framework that already exists or to recite a welter of statistics, but to show how neighbourhood policing is already working on the ground. That said, I feel it is worth reminding the House that without the consistent commitment shown by the Government since 1997, neither the powers nor the funding for neighbourhood policing would exist. The Crime and Disorder Act 1998 introduced crime and   disorder reduction partnerships and formal co-operation between the police and local authorities to reduce crime. The Police Reform Act 2002 provided for community support officers, who are now an essential ingredient of safer neighbourhood teams and who will number 24,000 by 2008. The White Paper Building Communities, Beating Crime, published in November 2004, promised to spread neighbourhood policing to every community, and to involve those communities in how they were policed. In January this year, the respect action plan further promoted the use of antisocial behaviour orders, dispersal orders and closure orders to attack antisocial behaviour. Many of those measures are being brought together and extended in the Police and Justice Bill, which is currently before the House.
	Recorded crime, as measured by the British crime survey, has fallen consistently since 1997. Both London boroughs crossed by my constituency have experienced significant falls in crime, and Hammersmith and Fulham has experienced the sharpest fall in London. The Government's aim is to see a further reduction in recorded crime of 15 per cent. between 2004 and 2008a higher percentage in Londonand to reduce the fear of crime through the national reassurance policing programme. Neighbourhood policing is key to both those targets.
	The decision of the Mayor of London and the Metropolitan Police Authority, chaired by Len Duvall, to accelerate by two years the introduction of safer neighbourhood teams in all 624 wards in London presents a major logistical task. The police service in London has risen to that challenge and ensured that every ward has at least a four-person team: a sergeant, a police constable and two police community support officers. A further police constable and community support officer will be added by the end of the year.
	Safer neighbourhood teams are dedicated to the wards to which they are assigned. They provide residents with a continuous and familiar uniformed presence, and they get to know their patch intimately, not only deterring crime but accumulating intelligence about both the area and its inhabitants. That is hardly revolutionaryindeed, it is what my constituents have been requesting for many yearsbut it is something that previous Governments and police authorities have declined to provide.
	I pay particular tribute to Ealing and Hammersmith and Fulham, where both the police commanders and the council leaderships have gone beyond what is required in introducing neighbourhood policing. In Hammersmith, the Labour council voted funds of 1 million a year to fast-track safer neighbourhood teams, introducing full-strength teams in most wards three years ahead of plans. In Ealing the borough commander, Colette Paul, was able to launch safer neighbourhood teams in all 23 wards on 3 April this year, having planned for their introduction in advance of any London roll-out.
	But community policing in those boroughs goes far beyond the additional police resources. As leader of Hammersmith and Fulham council, I had the privilege of working with three outstanding police commanders: Dick Cullen, who went on to run Hendon, Anthony Wills, who has become a national champion in the fight against domestic violence, and the present incumbent, Heather Valentine. They have worked hand in glove with both the statutory sector and the community to build trust and reduce crime. For those who remember the atmosphere of mutual suspicion and hostility that afflicted many police and local authority relationships in the 1980s, that is a sea change. Nowhere was that more apparent than in the aftermath of the London bombings last July. The work done by both the Hammersmith and the Ealing police forces to reassure and enlist the support of the whole community, especially in the wake of the attempted bombing at Shepherds Bush, was exemplary.
	Both boroughs have taken enthusiastically to partnership working. That often involves teams of police, community support officers and council staff descending on an area to deal with everything from crack houses and street robbery to graffiti, dog fouling and fly-tipping. They also plant trees, give advice to the homeless and, quite possibly, tell people the time. How different that is from the days of the special patrol group.
	Both boroughs have introduced the community payback scheme, using offenders to make reparation and environmental improvements in their community. Earlier this year, I attended the launch of the Safer Neighbourhood Annual Challenge at Hurlingham and Chelsea school. Next Monday is the awards ceremony, when children from Hammersmith and Fulham schools will explain their schemes for improving safety in their neighbourhoods.
	However, what my constituents most want to know is whether community policing actually cuts crime and the fear of crime. The first indications suggest that the answer is an emphatic yes. All crime, but specifically opportunist crime such as criminal damage, fell significantly more in wards where safer neighbourhood teams were operating last year. There, public confidence in the police rose by 12 per cent. more than was the case in non-SNT wards, complaints of antisocial behaviour fell by 7 per cent. more, sightings of police officers rose by 11 per cent. more, and the belief that the police were taking public concerns seriously by 8 per cent. more.
	Those are significant achievements in a very short time. We are only at the start of a policing revolution, in which public trust and the engagement of the whole community are the keys to a safer society.
	I appear to be talking myself out of my own Bill. The commitment of many councils and police services is such that I see neighbourhood policing going from strength to strength without the need for legislation, but there is always a cloud on the horizon. In this case, it is in the shape of the Tory and Liberal parties, whose assembly members in London turned their faces against the improvements in neighbourhood policing proposed by the Mayor and Labour group. Overwhelmingly, it is the Labour Government and Labour councils who have provided the resources and commitment to neighbourhood policing.
	I commend my Bill as an insurance policy to protect neighbourhood policing for the future. Of course, if residents in Hammersmith and Fulham and in Ealing, as well as in the rest of London and beyond, wish to take out their own insurance that policing will continue to thrive and improve in the years to come, the remedy is in their handsthey have but to vote for their Labour candidates tomorrow.
	Question put and agreed to.
	Bill ordered to be brought in by Mr. Andrew Slaughter, Lyn Brown, Jon Cruddas, Ms Karen Buck, Stephen Pound, Mr. Andrew Love, Mike Gapes, Meg Hillier, Mr. Andrew Dismore, Dr. Rudi Vis, Harry Cohen and Ann Keen.

Neighbourhood Policing

Mr. Andrew Slaughter accordingly presented a Bill to require police services to include proposals to introduce and sustain neighbourhood policing as a provision of their policing plans; and for connected purposes.: And the same was read the First time; and ordered to be read a Second time on Friday 16 June, and to be printed [Bill 177].

Orders of the Day
	  
	Finance (No. 2) Bill

(Clauses Nos. 13 to 15, 26, 61, 91 and 106, Schedule 14, and new Clauses relating to the effect of provisions of the Bill on section 18 of the Inheritance Tax Act 1984)
	Considered in Committee [Progress, 2 May].

[Sir Alan Haselhurst in the Chair]

Clause 91 ordered to stand part of the Bill.

Schedule 14
	  
	Investment reliefs: venture capital schemes

Mark Hoban: I beg to move amendment No. 6, in page 74 [Vol II], leave out lines 5 to 26.

Alan Haselhurst: With this, it will be convenient to discuss the following amendments: No. 7, in page 74 [Vol II], leave out from beginning of line 27 to end of line 4 on page 75.
	No. 8, in page 75 [Vol II], leave out lines 5 to 18.
	No. 9, in page 75, line 18 [Vol II], at end insert
	PART 1A

definition of gross assets

3A In section 293 of The Taxes Act 1988 insert new subsection
	(6CA) For the purposes of subsection (6B) above assets of any member of the company's group that consist of capitalised internal costs of the company relating to research and development expenditure shall be disregarded..
	3B In paragraph 8 of Schedule 28B to The Taxes Act 1988 insert new sub-paragraph
	(3A) For the purposes of this paragraph assets of any member of the company's group that consist of capitalised internal costs of the company relating to research and development expenditure shall be disregarded..
	3C In paragraph 22(3) of Schedule 15 to FA 2000, at end add and disregarding assets that consist of capitalised internal costs of the company relating to research and development expenditure.'. No. 13, in schedule 14, page 77, line 3 [Vol II], at end add '(3) Sub-paragraph (1) shall not apply to protected money as defined in paragraph 2(4) of this Schedule.'.

Mark Hoban: The first four amendments in this group deal with issues to do with the gross assets of investee companies. Those matters come into sharp focus as a consequence of the proposed reduction in the gross assets limit for venture capital trust investments. The final amendment in the group deals with changes announced in the Budget to the treatment of the VCT's own assets.
	One of the most significant changes to the rules applicable to VCTs and enterprise investment schemes is the Bill's proposed reduction in gross asset limits, and amendments Nos. 6, 7 and 8 would reinstate the limits that apply under the current legislation. The current rules state that gross assets should be equal to, or less than, 15 million prior to fundraising and 16 million after fundraising. That allows the very largest qualifying companies to raise 1 million.
	The proposed changes will reduce the gross assets limit so that a company will have no more than 7 million in gross assets prior to fundraising and no more than 8 million afterwards. The effect will be to reduce the amount that certain companies are able to raise. At present, a company with gross assets of 6 million is able to raise an additional 10 million through fundraising, but in future it will be able to raise only about 2 million. I am concerned about the effect on the operation of VCTs, and about the nature of the companies in which they can invest.
	If a VCT invests now in a company whose gross assets before investment comply with the new rules proposed in the Bill, its ability to make a follow-on investment will be restricted. Under the current rules, however, the VCT can make further investment in the company until the 15 million asset limit is reached.
	My experience before I came to the House was that early investors can find that their holdings and interest are diluted by people who come in later. It is often in their interest to make follow-on investments to maintain the size of their interest in the company. Reducing the gross assets limit from 15 million will restrict VCTs' ability to do that if the company hits the proposed new 7 million limit.
	Secondly, the proposed reduction in the gross assets limit is that it could change the asset base that VCTs and the Enterprise Investment Scheme can invest in. The focus will be on smaller, and therefore arguably more risky, companies.
	The lower gross asset limit proposed by the Government will focus more finance on the companies in the funding gap identified in the Treasury publication entitled Bridging the Gap, but there is a feeling that some slightly larger companies will still find it difficult to attract investment. The proposed reduction in the gross assets limit will exclude them from this source of investment, with the possible unintended consequence that the funding gap is moved further upthat is, that the needs of smaller companies will be met, but that slightly larger companies will lose out.
	The reduction in the gross assets limit could also change the type of businesses that VCTs invest in. Simon Rogerson of Octopus Asset Management has said:
	Managers will steer clear of asset rich UK manufacturing companies, focusing on asset poor service companies.
	When manufacturing is suffering from overseas competition and business investment is at a record low in real terms, is it right to exclude those businesses from the opportunities that VCTs present?
	It is not just manufacturing businesses that are asset rich. Last week, I visited a firm in my constituency that acts as a data centre for businesses, housing the servers that they need to power and maintain their websites. It is a relatively small business with about 30 employees but the cost of its data centre, including plant, cooling and some security measures, is extremely high relative to its turnover and its employee numbers.
	We must recognise that even a relatively small service business can be asset intensive and fall outside the limits set out in the Bill. Is it right that asset-intensive businesses are squeezed out of such funding? The Minister will argue that the problem would exist at whatever level the gross assets limit is set, and that is true. In a way, it is a crude proxy for company size, but the reduction in the gross assets limit from 15 million to 7 million makes the problem all the more evident. As asset levels fall, it is likely that more businesses will find funding through VCTs difficult to access.
	I should be grateful if the Minister would explain the basis on which the new lower gross assets figures were determined and say what steps he will take to monitor the flow of funds into VCTs and the EIS and the nature of the companies in which those funds are invested to ensure that the reduction does not adversely affect companies seeking funds. Will he also ensure that the measure does not simply lead to the funding gap moving up from companies with assets of less than 15 million to companies that previously would have benefited from funding through VCT schemes?

Brooks Newmark: Does my hon. Friend recognise that moving to lower asset values and smaller companies will mean a much greater inherent risk to those investing in such companies?

Mark Hoban: My hon. Friend is absolutely right. When companies have lower asset values there is an increase in the level of risk, which will prompt investors to consider the risk-return ratio and think about whether their likely returns from VCTs in the future are sufficient to warrant that investment being made. The Government need to monitor that carefully to ensure that having turned the tap on in VCT funding by increasing the tax relief, a matter to which I will return in later amendments, the consequential changes in the Bill of reducing that relief, increasing the holding period and reducing the gross assets limit, will make VCTs less attractive to investors, thus depriving smaller businesses of the funds that they need to expand and grow. My hon. Friend was quite right to highlight the importance of risk and its role in assessing these investments, and the relationship between small businesses and risk.
	Amendment No. 9 relates to the definition of gross assets that is set out in the Income and Corporation Taxes Act 1988. The amendment revisits that definition, taking into account changes in accounting practice that might have an adverse effect on companies' ability to access funds from VCTs in the future. It is, I regret, a highly technical amendment relating to the definition of gross assets of an investee company. Under UK generally accepted accounting practice, companies were given a choice with regard to the capitalisation of development expenditure: they could capitalise it or expense it. The rules setting out the basis on which that could take place were set out in the standard statement of accounting practiceSSAP 13Accounting for Research and Development.
	The permissive nature of SSAP 13 in giving companies that choice, together with the wide application of the prudence concept, generally resulted in businesses writing off development expenditure in their profit-and-loss account. For companies seeking investment from VCTs, and through the EIS, that was good news, because there was no addition to their gross asset figures.
	However, although UK accounting standards remain in place for unlisted companies, listed companies are adopting international financial reporting standards and one of the differences between UK and international standards is the treatment of development costs. Under international standards, development costs can be capitalised if they meet one of the following six criteria: the technical feasibility of the project; the intention to complete the intangible asset for use or sale; the ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the adequacy of the resources for completion; and the ability to measure reliably the development expenditure.
	The criteria are broadly similar to those used under SSAP 13 and are designed to ensure that only costs clearly identifiable as relating to a project that will be completed, which the company can afford to complete and which will yield financial benefits will be capitalised. In essence, they ensure that only costs that can lead to a realisable asset will be capitalised. If international financial standards matched SSAP 13 in their entirety, there would be no issue, as a company would be unlikely to capitalise those costs. However, there is a vital difference from SSAP 13: the relevant international standard states that where the six criteria are met, the costs shouldI emphasise the word shouldbe capitalised.
	So where is the issue for VCTs and investee companies? Capitalised development costs will count towards the gross assets test. That is increasingly important for two reasons: first, the lower gross assets test will bite, and secondly, although the Treasury might argue that IFRS apply only to listed companies and are thus unlikely to become an issue for unlisted companies, in reality I suspect that companies will increasingly adopt IFRS as a basis for reporting. That will be of particular interest to companies who may want an exit route through a listing in the future and may want to implement IFRS from the outset rather than restate their accounts at a later date. Having worked on such exercises in the past, I should prefer to start off with the basis on which I intend to report my results, rather than changing it partway through. If nothing else, it would save on the fees businesses pay to organisations such as my former firm.
	In practice, the adoption of IFRS is likely to mean that more development expenditure will be capitalised than under UK GAAP. Coupled with the reduction in gross asset rules, that could lead to fewer companies in need of capital qualifying for investment under VCT rules. As my hon. Friend the Member for Braintree (Mr. Newmark) suggested, there could be a double effect: first, there will be a change in accounting standards and, secondly, the lower gross asset figure will bite at much smaller companies. The changes will have an impact, in particular, on the software and pharmaceutical industries, many of which seek VCT investment.
	We believe that the decision to transfer to accounting under IFRS should not be hampered by the need to consider that potentially extremely significant adverse impact. I would be grateful for the Financial Secretary's thoughts on what is very much a probing amendment at this stage.
	Amendment No. 13 covers the way in which VCTs manage their assets. Again, it is a technical amendment, which highlights the concerns of a number of VCT managers and their advisers. One of the challenges that faces a VCT is how to manage its investments and any cash balances, while ensuring that once the initial investment period is over it complies with the rule that 70 per cent. of its investments are in qualifying investmentsthat is, investments in unlisted companies. Changes under the Finance Bill have an impact on the way that VCT managers can manage the affairs of their trusts. Historically, a VCT could place cash in non-interest-bearing accounts as a short-term measure to try to meet the 70 per cent. rule.
	Let me give an example to explain more clearly. A venture capital trust with investments of 10 million fully invested in unlisted companies would meet the criteria as 100 per cent. of its investments are in qualifying companies. A VCT could, for commercial reasons, decide to realise an investment of 4 million. If it put the cash in an interest-bearing account, it would have investments of 10 million but qualifying investments of only 6 million. Therefore, it would fail the 70 per cent. test. Under current rules, the VCT would be able to place the 4 million in a non-interest-bearing account and achieve the 70 per cent. rule by having 6 million in investments and 6 million in qualifying investments. It could then act to return that cash to its shareholders or make a further investment in another company without losing its qualifying status, because it would not be in breach of the 70 per cent. rule.
	There are strong reasons why VCTs would seek to use the cash as soon as possible. Investors focus on returns and if one invests the realised proceeds in a non-interest-bearing account, that is not very good for the overall return of the VCT. There is an opportunity under the existing rules to manage the VCT more smoothly, but there is also commercial pressure to ensure that the assets are used as quickly as possible and in a way that does not disturb the orderly management of the VCT.
	Under the rules in the Bill, that opportunity would no longer be available to VCTs and the concerns of managers have fallen into two categories. Those in the first group say that they would rather the rules were not changed at all. They would make it easier for all VCTs to handle non-interest-bearing deposits and to put cash into them to ensure that the 70 per cent. rule applies. Those in the other group suggest that the rule should not apply to VCTs that have already been set up. Managers might have taken different decisions if they had known that the relief was to be removed from the VCT. Under amendment No. 13, when a VCT has raised money before 6 April 2006, the money could still be placed in non-interest-bearing deposits and fall outside the definition of investments to ensure that it would be easier for VCTs to meet the 70 per cent. rule while bearing in mind that there will still be the commercial pressure to ensure that the money is returned to shareholders or reinvested as soon as possible.
	In conclusion, amendments No. 6, 7 and 8 seek to elicit from the Government their reasoning for reducing the gross asset test and to establish whether they have fully thought through the impact of that on the potential investments of VCTs. Amendment No. 9 seeks to change the definition of gross assets to reflect changing accounting treatment and to find a way in which the reduction of gross asset test could be mitigated to the benefit of certain companies that invest in, and spend a great deal of money on, development. Amendment No. 13 seeks to make it easier for VCTs to manage their own assets in an ordered way rather than having to act precipitately when a realisation is made.

Brooks Newmark: I begin by drawing attention to my entry in the Register of Members' Interests. Although I have never invested in a venture capital trust, I have, over the past 15 years, been both a venture capitalist and an angel investor. I hope that I can bring some of my practical experience to bear on this debate, especially in the context of amendments Nos. 6, 7 and 8. I will not address amendments Nos. 9 and 13, because my hon. Friend the Member for Fareham (Mr. Hoban) thoroughly covered those issues.
	Yesterday, we established that one of the themes of this year's Finance Bill is the Government's ongoing attempt to fix things that are not broken and to fudge those that are. The Bill's treatment of venture capital trusts is no exception to that trend. VCTs have clearly demonstrated that they are performing well in the market and seem to vindicate the Government's attempt to address the equity gap through targeted market intervention.
	We need look only as far as the figures given on the website of Her Majesty's Revenue and Customs for the total investment in VCTs. After a peak in 200001 of 450 million, investment plummeted to only 70 million in each of the years 200203 and 200304. That was the situation facing VCTs at the time that the Finance Act 2004 implemented the new income tax relief scheme. In the following year, investment reached 520 million and has surpassed 700 million in the last financial year.
	When the Treasury Committee conducted its inquiry into the success of the incentives it heard that
	there is very clear evidence
	that the incentives had reversed a dramatic decline in VCT investment, and had led to a
	significant uplift in the amount of capital that VCTs have been able to raise.
	The Government should be congratulated on that; it is beyond dispute. However, I do dispute that the reduction in the gross asset value of companies eligible for VCT investment is the appropriate way to refocus tax incentives on the equity gap.
	Not only are the Government moving in the wrong direction on this issue, but they are moving in two directions at once. Part 1 of schedule 14 will alter the level of risk that VCT investors are exposed to by targeting VCT investment in smaller companies. That is the Government's stated aim. However, part 2 of schedule 14 cuts the incentives that investors will receive. The two parts must be considered together because if any of part 1 remains in the Bill, it will have a knock-on effect on the need for the incentives offered in part 2 of the schedule.
	As one industry analyst has said, the Government's proposal
	has changed the risk and reward profile of VCTs significantly.
	Another comments that the change
	appreciably alters the risk-reward profile of private-equity investment by personal taxpayers.
	Since bad news comes in threes, let me offer one further comment:
	The reduction to company size greatly increases the level of investment risk. Smaller companies are normally, by their nature, more risky.
	That is the point that I made to my hon. Friend the Member for Fareham. That problem has long been foreseen.
	In 2003, the Treasury conducted its own analysis of the likely consequences of tinkering with the balance between risks and return. It concluded:
	If there were clear evidence that this would reduce the attractiveness of investment in VCTs, there might be a case for enhancing tax reliefs at the same time as tightening the scheme's focus.
	Reducing the gross asset value of eligible companies was always considered to be an alternative to altering the structure of incentives.
	Three years later, the Treasury is determined to pursue contradictory objectives by increasing risks and cutting incentives at the same time. The position is simply not sustainable. Instead of fundamentally altering the balance between risk and return, the Government should be ensuring greater investor protection. Bearing in mind that there are already a healthy number of business angels available to provide seed capital for high-risk start-ups, I question whether it is appropriate to encourage individual investors into higher beta investments in companies with a gross asset value under the proposed new limit.
	This concern is growing in currency. In November, the chief executive of the Financial Services Authority told the Treasury Committee that, despite having issued warnings to investors and VCT providers, the FSA
	need to be perhaps a little smarter on how we convert the data we put on our website into the information that goes into the hands of the population.
	The Government have a responsibility to keep a grip on the balance between the risks and rewards offered by VCTs. Changing both sides of that equation at the same time is imprudent.
	Nevertheless, I recognise that there has been some justified concern that VCTs are not operating in the way that was intended when they were set up 10 years ago. Foremost among those concerns is the one about the practice of parallel investment, in which two or more VCTs under the same management act together to invest beyond the 1 million investment limit imposed on each separate VCT. As Lucius Cary, the founder of Oxford Technology VCTs, has said, although that behaviour
	may be technically legal, it is pushing the boundaries and undermining the original objectives of the legislation.
	Clearly, VCTs clubbing together to take part in larger management buy-outs is a problem, but it is a problem that was foreseen. The Treasury's report into the equity gap, which dated from before the changes included in the Finance Act 2004, examined the issue of regulating concert parties in order to assist early-stage investment. The report suggested that
	the scheme rules could place restrictions on VCTs forming part of an investment syndicate that collectively invests beyond the 1 million upper investment limit.
	If the Government remain concerned by parallel investment, Ministers should confront the issue head-on and not seek to address it by the roundabout route of restricting the gross asset value of eligible companies.
	I want to return to my substantive objections to the changes proposed in part 1 of schedule 14 and to my reasons for arguing that they should not stand part of the Bill. Based on my experience as a practitioner, I believe that restricting the gross asset value of eligible companies to 7 million before investment and 8 million immediately afterwards does not focus on the real equity gap. If anything, the limits have been moved in the wrong direction and the probing amendments tabled by my hon. Friend the Member for Fareham are modest in seeking to preserve them at the current level.
	There are an abundance of business angels who are capable of providing seed capitalthat is generally provided for companies with gross asset values of 1 million to 3 millionto kick-start small businesses. The real difficulty that businesses continue to face is in accessing second-round financing. That is the issue. Many individuals who came to me when I was in the business before I came into the House would complain that there was a lack of access to capital once companies got above roughly 5 million. We should address that gap between 5 million and 25 million.
	Further restriction of the gross asset value of eligible companies would be retrograde. I appreciate that this is not part of the amendment, but we should be looking to raise the limit to 25 million instead of slashing it. Recently, in another place, Lord MacGregor of Pulham Market said of the existing gross asset value limit:
	There is clear evidence that it is companies above that level which need the venture capital investment. The limit has not . . . been indexed, and it needs to be looked at again.[Official Report, House of Lords, 16 March 2006; Vol. 679, c. 141011.]
	The Government have indeed looked at the matter again, and drawn the wrong conclusions again. That is a judgment based on my experience in the industry. The change in gross asset value in schedule 14 is too sudden and significant to be undertaken without greater industry consultation and I urge the Government to reconsider their decision.

Colin Breed: The Liberal Democrats and the House as a whole have to recognise that the private equity market in the City has been one of the great successes in recent years. It now provides more than 50 per cent. of all private equity in Europe; perhaps it is second only to the US in the provision of that capital. The Government have played a part in that by providing the legislative and taxation framework and a business-friendly environment in which that could happen.
	It therefore seems rather strange that we should be restraining that very success with the proposals in the schedule. I suspect that tax breaks have been the driving force. The hon. Member for Braintree (Mr. Newmark) successfully pointed out that, only a few years ago when things were going into a decline, the change was made and more money was put in. Perhaps it is the very successnow building up to more than 700 million or 800 millionthat is causing the Treasury to become rather frightened at the prospect of the amount of tax relief that it is going to allow.

Rob Marris: According to my understanding of the matter, the hon. Member for South-East Cornwall (Mr. Breed) is making exactly the same mistake as the hon. Member for Braintree (Mr. Newmark). The hon. Member for South-East Cornwall is talking about the capital limit, which is of course the subject of the amendments. But when he is talking about the restriction of relief, he seem to be overlooking that the relief for enterprise investment schemes will increase from 200,000 to 400,000 and that the reference by the hon. Member for Braintree to a rate of 30 per cent. involved a misunderstanding. The rate is currently 40 per cent. for a two-year period, which is expiring. If it expired and no provision were made in the Bill, the rate would go down to 20 per cent. In fact, under the Bill, the rate will go to 30 per cent., so tax reliefs are being increased.

Colin Breed: I entirely accept that. We can look at those compensations and the way in which the provisions tinker about with the actual amount of tax relief and the allowable assets. That tinkering has been brought about to try to engineer a more focused approach to smaller companies and to try to address some of the issues in respect of the risks and rewards. The incentives in that respect have been drastically reduced and there will be a significant reduction in the amount of private equity that will be going into small businesses in relation either to start-up or to development capital.
	That echoes what we were talking about yesterday afternoon in relation to small businesses. We are looking to try to provide a regime that gives businesses that have been started up the opportunity to move on, so that they become more successful, provide more opportunities in relation to the economy and employment and indeed provide corporation tax. We seem to have situations and regimes that are not connected to each other. The hon. Member for Braintree was talking about the gap between 5 million and 25 million, which may be termed development capital, rather than venture capital. There is certainly a gap there.

Brooks Newmark: One of the problems that we face is that the private equity industry, which was alluded to, is, in effect, moving further up the food chain and the elements involved are getting bigger and bigger. The funding gap is indeed at the lower level, which is where business angels are needed and are playing a role. The point made by the hon. Member for Wolverhampton, South-West (Rob Marris) was irrelevant to the amendments; it had to do with taxation. We are concerned with gross asset values. By shrinking where we give the incentives for investors to go inby lowering that limitwe are going to make it far more risky and far less attractive for individuals to go into that part of the market.

Colin Breed: I entirely agree with that. We will see that reduction in the figures next year if these proposals go through. The Government are trying to engineer a reduction because they are looking to try to save some money in relation to this scheme. That will be a false economy. Opportunities will be largely missed because private equity funds are not going to be as prevalent as they have been in the past few years. There is no suggestion that there is a shortage of businesses looking for such capital. Indeed, there is probably more demand than there is current supply. If it were the other way round, there could be an opportunity to say, Well, we do not need so many incentives. However, significant numbers of businesseseven at that lower level; let alone the development levelare looking for the sort of private equity that they require to expand.
	I also entirely agree that the 70 per cent. investment rule needs to be looked at, particularly in relation to those funds that regularly liquidate some of their investments and then hold them in some sort of interest-bearing account. It would make no sense whatsoever to force them into non-interest bearing ones. I am sure that there is an easieror perhaps more elegantway of dealing with that than is currently the case.
	The alternative investment market has been a great success, but less money will go into it because the sort of companies that will qualify will not attract

John Butterfill: Order. The hon. Gentleman will be aware that this particular issue arises on a later group of amendments. I would be grateful if he confined his remarks to the present group of amendments.

Colin Breed: I am grateful, Sir John, and sorry that I transgressed.
	I have tried to find out what the savings resulting from the measure will be, but the estimates are rather wide. When the Minister gives us the benefit of his information, will he tell us what sort of savings there will be? I have seen figures ranging from between 15 million and 400 million, so I do not know what the exact savings are likely to be. However, if the savings are anywhere between those figures, such tinkering seems to be unnecessary. The measure addresses a success, rather than a problem, and that success needs reinforcing, not restraining. The opportunities that are available to private companies will necessarily be reduced and investment will become less attractive. Overall, the measure is unnecessary, given the sort of savings that it will make.
	If a reduction is absolutely necessary, the methods that the Government are choosing represent using a sledgehammer to crack a not especially difficult nut. A more sensible approach might be to focus on certain sectors, rather than going across the board. If the Government want to define the scheme so that it is less expensive to the Treasury, I am sure that there would be ways in which they could focus on the sectors for which they want to produce more help. As the hon. Member for Fareham (Mr. Hoban) said, the proposals will probably lead to gravitation towards technology-based businesses with intangible assets, rather than businesses with tangible assets.

Stephen Hesford: The hon. Gentleman says that the Government could approach the matter differently by focusing on sectors. If there was limitation in the way in which he suggests, how would he guide us? Which sector would he focus on and how would he do that?

Colin Breed: First, I would prefer to leave the scheme as it is. However, if we were to examine certain sectors, we would have to look at those that find capital especially difficult to obtain. The situation is not difficult for a management buy-out that will be going to the market in two or three years' time because most people would be scrabbling to try to invest in something that would produce a great return in a short time. However, there are businesses that require a longer gestation periodthey are perhaps smaller and need to retain for a longer timeand they might be above the limit on eligible assets. Putting an arbitrary restriction on eligible assets, rather than considering each sector, is an across-the-board approach. A more elegant approach would be to introduce more targeted and focused support for the specific sectors and companies that we would like to support.

Rob Marris: I understood the hon. Gentleman to be saying that his preference would be to leave things the way that they are, which I assume to mean that he supports amendments Nos. 6 to 8. I understand that he has had difficulty getting the figures. However, in his methodology for approaching the question of encouraging investment, especially in some of the riskier areas, he is looking at only half the equation, as I suggested earlier. If he was to leave things as they are, the enterprise investment scheme tax relief would be capped at 200,000, not 400,000, and furthermore the tax relief would revert from the current rate of 40 per cent. to 20 per cent. If we could get the figures for the whole equationthe changes to both tax relief and the capital limitshe might find that he supported the Government.

Colin Breed: I understand the hon. Gentleman's argument. He is right that a judgment can really be made only in retrospect. It is difficult to prejudge the exact outcomes. However, it is my judgment that for relatively little benefit, we are changing a successful scheme. Leaving aside the figures involved, the change sends the unhappy message to the industry as a whole that even when a scheme is successful and producing real benefits, the Government are prepared to tinker with it. For the sake of what I suspect will be a relatively modest saving, we could undermine some of the confidence that has been built up in recent years that the Government are behind the scheme. However, having seen the scheme's great success, they now seem to want to chop that away and retreat to the pre-2004 position, which would be a retrograde step.

Philip Dunne: I remind the Committee of my entry in the Register of Members' Interests. I am an investor in a venture capital trust: Baronsmead VCT 4. I am also honoured to chair its non-executive board.
	I welcome the measures to improve access to capital, especially the increase in the EIS limits to which the hon.   Member for Wolverhampton, South-West (Rob Marris) referred. Of course, investments in that category are not for the faint-hearted because they do not provide the portfolio risk diversification that is the attraction of a VCT. I also welcome the retention of tax relief for VCTs, albeit at a lower level, which we will discuss under a later group of amendments.
	The reduction in the gross assets of a company in which VCTs may invest from 15 million to 7 million immediately before an investment and from 16 million to 8 million immediately after an investment will significantly reduce the scope of eligible companies. As my hon. Friend the Member for Braintree (Mr. Newmark), who is an expert on these matters, rightly said, that will raise the risk profile of investors in VCTs. The risk profile will be raised by definition because the portfolio effect of a mix of business sizes in a VCT helps both the underlying investors and the managers of the trust to have greater confidence because investment performance tends to be better when there is a greater spread of both risk and the size of investment in individual companies. The reason why the limits have been selected is unclear, so I urge the Minister to give an explanation to Opposition Members who are perplexed.
	When VCTs were first introduced under the previous Government in 1995, the limit on the gross assets of eligible companies was 10 million. Over the following 10 years, that would, of course, have inflated to a much higher figure, but even 10 million is significantly more than the amount proposed. Many VCTs take advantage each year of the period prior to and immediately after the end of the tax year to undertake fundraising. Several VCTs pulled their fundraising following the Budget. I have read several of their websites and many have cited the halving of the maximum size of investee companies as the reason. I will name a couple of fundsnot my ownbecause they are peer funds that perform well: Northern VCT 2 and First State AIM VCT, which was the best performing AIM VCT that was launched last year.
	Those who are involved in marketing such funds have a good sense of investor appetite for VCTs. I refer especially to Henry Chaplin, the chief executive of Noble Fund Managers, the website of which points out that he anticipates that the VCT market, having raised 800 million in the last tax year, will decline to only 300 million by 200708. That gives some idea of the impact of the changes that the industry is expecting.
	That takes us to why are the Government so keen to introduce this change. As was said earlier, this may be purely a revenue limiting exercise. It may be to do with the gaping deficits in the public accounts. It appears that it has little to do with seeking to professionalise and encourage a stable VCT industry. One issue that it will give rise to for small companies has been touched on already. Those companies with gross assets of, for example, 6 millionjust under the limitcan now raise only 2 million compared with a 10 million subscription that they could have raised under the previous regime. That will have a significant impact on small and medium-sized companies that have a requirement for significant amounts of capital, and this avenue of raising that capital is likely to be shut to them. That could have an effect on higher risk and potentially higher return or high risk and nil-return companies in the pharmaceutical sector and other areas that are great consumers of capital.

John Bercow: The prognosis that my hon. Friend cited of a prospective reduction from 800 million to 300 million is both gloomy and alarming. For the avoidance of doubt, can he confirm that the person whom he has quoted, Mr. Chaplin, is suggesting that the reduction will be exclusively the consequence of the Budget and not in any way attributable to other unrelated factors? If that is so, it is a source of alarm.

Philip Dunne: I have been quoting from Mr. Chaplin's website. I have not had a direct conversation with him. The implication is that venture capital trusts that were in the process of fundraising and have cancelled are doing so as a result of the specific Budget amendment that we are considering.

Brooks Newmark: It might be helpful to explain a little more the cause behind the statement to which my hon. Friend referred. It has to do with the fact that smaller investments are far more risky. Therefore, people are far less likely to invest in such companies. At the same timethis is the point that the hon. Member for Wolverhampton, South-West (Rob Marris) was makingif there are not the tax incentives that follow these investments, that will be another reason why people will not invest in the industry. There is a double whammy, which is what I was talking about earlier.

Philip Dunne: I am grateful to my hon. Friend for supporting my contention that that will be a direct consequence of the Budget. Access to follow-on capital will therefore be severely restricted as a result of the proposed measure. It will be interesting to know whether that is part of the Government's intent.
	The second issue that I want to raise is perhaps a slightly more detailed point, but it is a direct consequence of the proposals that are subject to the amendments. A number of VCTs, including the one that I chair, have a dividend reinvestment scheme under which investors are given the option to receive their dividends not in cash tax-free, but by reinvesting in new shares issued by the VCT. That has attractions for investors as they can increase their investment in a VCT with the accordant tax advantages. It is also attractive to managers of VCTs because they can raise modest capital on regularly without having to go through the costly exercise of marketing and producing a prospectus, for example.
	The problem is that as a result of the proposed changes from 6 April any new shares raised by a VCT will have to be invested in companies that meet the new criteria. That means that an existing VCT, which has an established portfolio of investments in companies that exceed the current criteria, will have to start managing an entirely separate portfolio. I believe that that is the case. I think that the Minister is nodding.

John Healey: indicated dissent.

Philip Dunne: That applies to every new investment that a VCT seeks to make using new capital raised by issuing shares in respect of dividends under a reinvestment scheme. This will increase the complexity to a point where this sort of dividend reinvestment is highly unlikely to be worth while for the manager, notwithstanding the tax benefits that it provides to investors. If the Minister can say whether that is something that he intends to catch by the proposed measures, I shall be most grateful.

John Healey: We have had a broad-ranging debate on this set of amendments. In a sense, it sets the scene for a wider range of issues connected with the package of reforms that we propose in clause 91 and schedule 14, which go beyond the five amendments in the group. I shall seek to deal specifically with the five amendments and the points that have been raised during the debate.
	I turn first to amendments Nos. 6, 7 and 8, which deal essentially with the growth of assets test, as the hon. Member for Fareham (Mr. Hoban) made clear. The amendments seek to remove from the Bill the provisions that are designed to refocus venture capital schemes on those small firms that are most in need of improved access to finance. After all, this is the principal purpose of the policy framework and the principal justification of investing a significant amount of public money in terms of the tax forgone.
	It may help the Committee if I explain why we have brought forward these proposals that bear on the gross assets test. The amendments, if they are pressed, should be rejected. Venture capital schemes are an important range of interventions contributing to the Government's wider policy to improve access to finance for small companies with growth ambitions. It is important that we build on the success of the schemes so far. It is important also that we ensure that the support that the schemes provide is effectively targeted to where it is needed most. That is what the provisions in the Bill are designed to do. Refocusing the growth assets test in this way will ensure that investment under these schemes is directed to those companies that most need it and to where there is most clearly a market failure. It is interesting that this purpose is recognised clearly by the industry.
	Comments after the proposals were published included those from Paul Mumford of Cavendish Fund managers. He said:
	the changes bring things back to the true spirit of venture capital, which means investing in young companies and sticking with them as an investor until they have grown enough to merit further investment from institutional investors.
	Julian Hickman, a partner of Longbow Capital, said:
	the Chancellor seems to be trying to guide venture capital schemes back to their original intended role; the support of small businesses in search of venture capital funding.
	That is precisely the point and the purpose of the package set out in clause 91.
	The change will ensure that money raised under the schemes does not drift towards lower-risk investment, where it would be less focused on driving growth and more devoted to simply maintaining valuethe sort of investments that firms could and should be more capable of sourcing from other places.

Brooks Newmark: What analysis the Minister has undertaken to justify that comment and to show what size the market will become after the Bill is enacted? What analysis has he undertaken to show that there is not a funding gap above 7 million or 8 million? Why has he chosen 7 million or 8 million as opposed to 10 million? I am curious as to what analysis the Government have made to make the decision that they are about to make.

John Healey: The hon. Gentleman again poses the questions that he posed earlier. I have not yet come to the points that he and others made. I was about to turn to the specific points raised by the hon. Member for Fareham, then to those of the hon. Member for Braintree (Mr. Newmark) and then on to those of the hon. Member for Ludlow (Mr. Dunne).
	The hon. Member for Fareham asked the same question, namely, what is the basis of the new gross assets test and the level at which we have set it. He, too, expressed concern that it will somehow lead to neglect of manufacturing industry, particularly relatively small business services companies. I will share with him some of the analysis that underpins the decision to set the new gross assets test at 8 million and 7 million. Analysis of the investments made in the VCT scheme and the enterprise investment scheme shows that investments in companies with total assets of less than 8 million are proportionately higher in technology, business services and manufacturing. All such companies are higher-risk sectors, which the Government therefore want to target. By way of contrast, VCT and EIS investment in companies with total assets of more than 8 million is proportionately higher in sectors that tend to be asset-backed and therefore less risky forms of investment, such as the hotel sector, bars and catering, wholesale and retail. Having assets clearly increases their ability to put up collateral against loans, so they are less likely to face the same problems that small firms in some other sectors face in accessing finance. The hon. Member for Fareham may be interested to know that the average size of a company invested in under a VCT is 3.8 million.
	The hon. Gentleman also asked whether we will monitor the impact of these changes, and the short answer is that of course we will. We have done so since we took responsibility for the scheme and we will measure and monitor the impact on the funds raised, on the investments made, and on small and growing firms. We will also monitor evidence of change in terms of a finance gap.
	The hon. Members for Braintree and for Ludlow spoke from their own personal experience. I was interested to hear about that, but it has led them to draw conclusions rather different from our own and from many experts and specialists in the field. I point out to the hon. Member for Braintree in particular that riskier investments that have difficulty raising other forms of growth capital are precisely where the market failures lie and where the case for Government intervention and support is strongest. Our proposed change in the gross assets test is designed to ensure that significant Government support is well justified and well targeted.
	The package in schedule 14 to which the hon. Member for Braintree referred will increase, rather than reduce, the incentives to invest, as my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) said. I suspect that we will discuss this issue in more detail when we consider amendments Nos. 10 and 11, so I shall not stray there, except to point out to the hon. Member for Braintreewho mentioned the risk-reward balancethat the package includes setting the rate of income tax relief for investments in VCTs at a new and increased level of 30 per cent.
	I appreciate the tribute that the hon. Member for South-East Cornwall (Mr. Breed) paid to

Brooks Newmark: Will the Financial Secretary give way?

John Healey: I suspect that the point that the hon. Gentleman is about to raise is one that he will have ample opportunity to discuss when we consider the next group of amendments; however, I give way.

Brooks Newmark: I am curious as to the Financial Secretary's logic. How can reducing the tax incentive from 40 per cent. to 30 per cent. and lowering the gross assets reduce risk? By definition, doing so tends to lead to riskier investments.

John Butterfill: Order. The hon. Gentleman knows very well that that point will be dealt with in the next group of amendments; it is not particularly relevant to this one.

John Healey: My suspicions, Sir John, were precisely confirmed by the hon. Gentleman's intervention.
	Perhaps I may turn, as I had started to do, to the contribution of the hon. Member for South-East Cornwall, whose tribute to the success of the economy under this Governmentand particularly the ongoing success of the venture capital schemesI appreciate. He was right to say that the UK is one of the leading economies; in fact, a recent US report described the UK as the best business environment for small firms to access investment finance in. On the particular set of arguments that he laboured, I should point out that the package of changes in clause 91 is not about reducing cost or reducing support for this form of business investment. It is about focusing such support first, where it is most needed; secondly, where the greatest value to the taxpayer lies; and thirdly, where it is likely to make the greatest contribution to the growth and productivity of the UK economy.
	I stress that this package of reforms is not about looking for savings. If the hon. Gentleman consults the Red Book, he will see that the scorecard cost of these proposals, which were announced in the Budget, for the next financial year is minus 15 million. In other words, for that and the following year, the additional cost of the proposals to the Exchequer is 15 million. He may also be interested to know that the cost of such schemes this year is 220 million.

Colin Breed: I am grateful to the Financial Secretary for that information, which reinforces my view. Given that there will to be no visible change in the cost to the Treasury in forgone taxif anything, the cost might even increase slightlyis the proposed across-the-board test on eligible assets the most elegant way of ensuring that the limited sums available are focused on the right area? As the Financial Secretary knows, certain sectors of the small business world are perhaps more demanding than others, and some are more deserving. Applying seemingly arbitrary figures across the boardhe has yet to explain how he arrived at the figures of 8 million and 7 million, rather than, say, 10 millionwill not enable us to focus on the companies and sectors that need support.

John Healey: We are looking for effectiveness, not elegance. The package of measures, including the reduction in the gross assets test, will help us to build on the success of the scheme and ensure that it is properly targeted and good value, therefore, for the substantial sums of taxpayers' money that such support entails. The hon. Gentleman expressed concern at our setting the gross assets test at 8 million and 7 million respectively, but I should point out that the average size of a company invested in under a VCT is 3.8 million. The test should not be a concern to him if he is genuinely interested, as we are, in achieving greater levels of investment and easier access to finance for firms that are riskier investments. Such firms tend to be smaller firms, and they always find it more difficult to access the investment and growth capital that they need from other sources.

John Bercow: Precisely in the light of what the hon. Gentleman just said about the net cost to public funds of his overall package, and of the widespread uncertainty about whether the effects of his scheme will be exactly as he envisages, does he think this a very good test case of the appropriateness of the Government's introducing a sunset clause? The provision would therefore automatically expire after a given period, whereupon we could judge who was right and what action did or did not need to be taken.

John Healey: I know that the hon. Gentleman is keen on sunset clauses, but in this instance the short answer to his question is no. I think that he was on the Finance Bill Committee, and he almost certainly participated in proceedings on the Finance Bill 2004, when we introduced the temporary two-year uplift of the rate of income tax relief available on VCTs from 20 per cent.the ongoing rateto 40 per cent. Although I did not refer to the concept of a sunset clause in moving that provision, it was time-limited, so I am sure that it meets with his approval at least in retrospect, even if he did not support it at the time.
	Amendment No. 9 seeks to exclude any capitalised research and development expenditure from the calculation of a company's gross assets for the purposes of the qualifying test. The hon. Member for Fareham said that it is a probing amendment, and I hope that he will be convinced of my view that it is neither necessary nor desirable. Let me try and explain why.
	The gross assets test, as I said, is designed to target smaller high-risk companies for investment under the schemes by focusing on the level of assets on the balance sheet. The legislation deliberately does not define the assets to be taken into account, but as is our approach in general, it follows accountancy practice. If the tests were to diverge from accepted commercial accounting rules, more complex legislation would be required, which neither the hon. Gentleman nor I generally advocate. It could lead to additional burdens on the conduct of VCT businesses. However, the international accounting standards, IAS 38, have introduced a requirement to capitalise research and development expenditure in certain circumstances, whereas the UK standard to which the hon. Gentleman referred, SSAP 13, states that that treatment is optional. In either case, the range of circumstances in which R and D must or can be capitalised remains limited to certain development costs, not research costs.
	Expenditure, therefore, will be capitalised only where it is already established that the outcome will be a marketable productin other words, cases where the company has a genuine asset that can be valued on the balance sheet. The effect of the amendment would be to open up the scheme to companies that have already developed valuable assets with a balance sheet value above the threshold of the scheme.
	We have already introduced the research and development tax relief, which is widely recognised as an effective, generous and appropriate policy measure. We announced in the Budget that it would be extended to provide additional support for mid-sized companies with up to 500 employees. The Opposition are effectively asking us for another form of indirect support for research and development. The right mechanism for that support, I suggest, is the R and D tax credit. It targets R and D expenditure directly, and does so in a way that is widely accepted to be an effective form of incentive for research and development.
	Finally, amendment No. 13 seeks to exempt money raised from venture capital trusts prior to the current tax year from the requirement that it is invested in line with the objectives of the scheme. The 70 per cent. rule for venture capital trust investments, as the hon. Gentleman explained, already allows flexibility on up to 30 per cent. of the value of a VCT's fund. That is generous enough to allow VCTs the flexibility that they need to operate, and the Government's proposed change simply closes a loophole that makes it possible to get round the test.
	Let me dwell on the rule change and the accusation of retrospection, which I do not accept. What we are proposing will help to ensure that the scheme meets the policy purposes for which it was introduced, and makes a contribution to the growth and productivity of this country and our small firms, as intended. The 70 per cent. rule about the funds from the VCT being invested in qualifying investments was the original intention of the scheme. Rules were drawn up to achieve that, and it is the basis on which approvals have been sought by VCTs and given by the Government.
	It cannot be right that funds raised with a significant tax relief are not used for the purpose for which the tax support was intended. It cannot be right that fund managers have a get-out if they fail to make the level of qualifying investments that are often in their prospectus. It cannot be right also that investors' expectations that their money will be invested in small companies with high growth potential are thwarted by the funds instead being kept in cash or non-interest-bearing accounts.
	I urge the hon. Gentleman to bear it in mind that the measure will not apply to funds raised before 6 April this year. It is not designed to catch inadvertent breaches. If there are inadvertent breaches of the 70 per cent. rule, they should be reported, together with a plan to correct them, to HMRC, which will not take the enforcement action that would otherwise be required. The measure is not a device that the majority of VCTs use or need to use in order to maintain their adherence to the 70 per cent. qualifying rule.
	When those considerations are added to the fact that we are not removing the essential generous flexibility of the 30 per cent., it is clear that the amendment is not appropriate. The hon. Gentleman, the hon. Member for Braintree or the hon. Member for Ludlow may know that one of the leading VCT advisers advises all its clients that they should aim not for 70 per cent., but for 80 per cent., so that they have sufficient flexibility to deal with the peaks and troughs of the cycle.
	Clause 91 ensures that the legislation operates effectively in requiring that the funds raised by VCTs are directed towards qualifying companies. I say to the hon. Member for Ludlow that we see no reason why the VCTs should have difficulty adapting to the change by next year, when it comes into force. The provisions of schedule 14 are designed to increase the effectiveness of the venture capital schemes

Philip Dunne: rose

John Healey: I was just winding up, but I will give way to the hon. Gentleman. He has assiduously attended the debates of the Committee of the whole House, and I welcome that.

Philip Dunne: I am grateful to the Financial Secretary. The HMRC guidance on inadvertent breaches is welcome, as it may deal with the issue mentioned by my hon. Friend the Member for Fareham (Mr. Hoban) concerning a realisation generating a substantial amount of cash at an inopportune point in the year, when a test might be about to be met, for example. It would be helpful to the Committee if the Minister would confirm whether that would be addressed by the guidance from HMRC. If it would not, ought there not be provision in the Bill?

John Healey: To put the matter in perspective, the cases of inadvertent breaches of the rule that have come to our attention number fewer than a dozen. It is a small-scale problem in a minority of VCTs. HMRC will shortly issue guidance that will help cover important aspects of inadvertent breaches. I shall make sure that the hon. Gentleman receives a copy directly.
	The amendments would prevent us from improving the scheme as we intend. I hope the Opposition will see fit to withdraw them, having had this useful and extended debate. If not, I shall have to ask my hon. Friends to vote them down.

Mark Hoban: I thank the Minister for the effectiveness of his reply. I shall comment first on amendments Nos. 6, 7 and 8. He makes a persuasive case for the reduction in the asset limits. I am grateful, as I am sure is the VCT industry, for his reassurances that the situation will be kept under review and action taken where necessary. The House would welcome regular updates on the monitoring of the nature of the investments undertaken by VCTs working under the new asset limits.
	On amendment No. 9 on accounting practices and the differential treatment that there can be under UK and international standards for the capitalisation of developmentthe right hon. Gentleman was right to distinguish between research and developmentthe issue is not so much that one group of businesses would get a double benefit for R and D, as that a business that applied international financial reporting standards could go over the gross asset test, whereas the same business using generally accepted UK accounting practice could fall below the gross asset test.
	Given the difference in accounting practice for the treatment of capitalised development costs under the UK and international financial reporting standards, a company could benefit from VCT investment while another does not. I hope that the Financial Secretary will reflect on that as we consider unlisted companies' take-up of international financial reporting standards, and whether that causes some businesses to lose out on VCT relief because they adopt one method of accounting rather than another.
	On amendment No. 13, I also welcome the Financial Secretary's reassurance on inadvertent breaches of the 70 per cent. rule and his comments on the associated guidance that HMRC will issue. Although his remarks are absolutely right about the importance of such money being investedthat is what investors in VCTs would seekit is important that the guidance on inadvertent breaches should consider situations where investments might well be realised and the trust might breach the 70 per cent. rule, pending a further investment or the return of cash to its shareholders.

John Bercow: The Financial Secretary referred to the issue of guidance by the Inland Revenue. Although we are not discussing regulations that will be the subject of a statutory instrument, and therefore subject to either the negative or the affirmative procedure, does my hon. Friend agree nevertheless that it would be helpful to the House if we could have sight of that guidance, if only in draft form, before the final passage of the Bill? It would aid and support our deliberations to get that before rather after the event.

Mark Hoban: As ever, my hon. Friend makes an important point about the parliamentary scrutiny of such issues and the way in which we can address them before consideration of the Bill has been completed, and I am sure that the Financial Secretary will take that point on board. I hope that the industry and its advisers are fully consulted on the guidance, to ensure that it tackles inadvertent breaches. With that, and the Financial Secretary's assurances, I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.

Mark Hoban: I beg to move amendment No. 10, in page 75, line 25 [Vol II], leave out '30' and insert '40'.

John Butterfill: With this it will be convenient to discuss amendment No. 11, in page 75, line 30 [Vol II], leave out '30' and insert '40'.
	These amendments have already been referred to en passant.

Mark Hoban: I am sure, Sir John, that we will have a fuller airing in this debate of some of the issues that were raised in the debate on the previous group of amendments. Under the amendments now before us, we seek to make permanent the temporary increase in income tax relief that applies to VCTs and enterprise investment schemes. The Financial Secretary and I have different views of what a move to 30 per cent. means. He seems to think that it is an increase; I might suggest that it is a decreasebut I am sure that we will return to that topic in a minute.
	It is worth remembering why the 40 per cent. rate was introduced in 2002. It was intended to stimulate the VCT market, and in the words of the British Venture Capital Association's pre-Budget submission,
	meet the Government's objective of creating funds for investment in entrepreneurial companies that stimulate growth and create employment and tax revenue.
	Indeed, it has had the benefit of stimulating the VCT market and raising more funds for investment in unlisted companies. In 200405, VCTs raised more than 500 million in funds; press comment around the end of the financial year suggests that they had raised about 730 million. Of course it is worth bearing in mind the fact that in the year before the relief was increased from 20 to 40 per cent., the sales of VCTs were worth less than 100 million.

Stephen Hesford: In simple terms, as I understand the matter, before the change took place in 2004 the rate was 20 per cent. That rate was introduced as a temporary two-year measure to increase VCTs, which it has done. I understand that the hon. Gentleman is making that point. The Government are now regularising the situation consonant with that prior to 2004, to a higher rate30 per cent. What is wrong with that?

Mark Hoban: I will address the hon. Gentleman's question about why that might be wrong, but the point, which was touched on in the last debate, is that both the Financial Secretary and the hon. Gentleman talk about the rate increasing from 20 to 30 per cent. Some people would argue that there is really a decrease, from 40 to 30 per cent. It depends on one's starting point, in judging what the measure is trying to change. With amendments Nos. 10 and 11, I seek to retain the 40 per cent. tax relief rate, rather than to reduce it to 30 per cent.
	Before the changes took place in 2004, VCTs were running out of steamtheir sales were lowand the temporary increase in tax relief to 40 per cent. stimulated that market. There is concern in the VCT market about the impact that the reduction in tax relief to 30 per cent. might have on the sales of VCT funds, and I shall quote some of the press comment around the time of the Budget. Bestinvest suggested that sales of VCTs in 200607 might be about 100 million to 150 millionquite a significant decrease on the amount achieved in 200506. Martin Churchill of Tax Efficient Review forecast sales of 250 million to 300 million. My hon. Friend the Member for Ludlow (Mr. Dunne) quoted the views of Henry Chaplin, suggesting that sales would be about 300 million. Clearly, we will not know the outcome until the end of the financial year, and there is uncertainty about the funds that VCTs will raise, and therefore the money that will be available to trusts to invest in small and growing businesses.

Stephen Hesford: The hon. Gentleman would not have intended to conflate two arguments, but I understand that when the hon. Member for Ludlow (Mr. Dunne) gave us figures about the differential sales of VCTs, he was talking about the previous set of amendments, and the sales differential that resulted from what the Government were doing with those amendments. We are now talking about a different set of regimes, and the hon. Gentleman is conflating the previous figures with these. Which sales drop does he think results from these changesor is he quoting another set of drops that was put before the House on a different set of amendments?

Mark Hoban: The hon. Gentleman needs to remember that there is a series of three changes in schedule 14 that impact on the sales of VCTs, and it is very difficult to pull apart the impact that each one will have on sales. My hon. Friend the Member for Ludlow referred to Henry Chaplin in the context of the impact of the reduction in gross asset values. Some people will point to a later amendment on the holding period as being the driver behind this; others will look at the change in tax relief. The complexity arises in part because of the way in which the amendments have been selected for debate, but also because of the complex interaction between holding periods, gross asset tests and tax relief.

Stephen Hesford: Does the hon. Gentleman accept that there is an element of double counting? The House needs to be sure which figures we are relying onthose for the specific amendments that we have under review, not those for the other amendments.

Mark Hoban: The hon. Gentleman is about to make a mountain out of a molehill. There are differing effects, and it is difficult to unpick the precise effect that each one has. The point that I am making is that in 200405 and 200506 sales of VCTs were strong, and had increased significantly during 200304, during which time the income tax relief was 40 per cent. If the Government say that the 40 per cent. rate led to that increase in sales, the hon. Gentleman must conclude from that that the reduction in income tax relief could, as has been suggested by some in the industry, lead to a reduction in sales in 200607 and subsequent years.
	The concern in the sector about the change in the rate   of relief boils down to a relatively simple but fundamental point that my hon. Friend the Member for Braintree (Mr. Newmark) referred to in his intervention on me during our debate on the previous group of amendments. There is a relationship between the level of risk that an investor will take on board and the return. The concern is that the overall effect of reducing the rate of relief, and allied to that the increase in the rate of investment that we dealt with in the previous group of amendments, will be a reduction in the return from VCTs, making them less attractive to investors. Will investors be prepared to accept the greater risk attached to smaller companies with fewer assets given the reduction in tax relief on their investments in VCT and EIS schemes?
	Martin Churchill, to whom I referred earlier, from Tax Efficient Review, suggests that there might be a flight from higher-risk investments within VCTs to lower-risk investments. Robert Drummond, a former chairman of the British Venture Capital Association, has said:
	With the 30 per cent. income-tax relief rate the Chancellor has found a compromise between maintaining the current level and returning to 20 per cent., but this change, together with the increase in the minimum holding period from three to five years
	we will deal with that in the next group of amendments
	appreciably alters the risk-reward profile of private-equity investment by personal taxpayers.
	I appreciate that many in the VCT sector were relieved when the Chancellor announced that the rate of relief was to be 30 per cent. A number were concerned that it would be reduced further to 20 per cent. But I think that even the hon. Member for Wirral, West (Stephen Hesford) will agree that it is clear that VCT investment levels are sensitive to changes in tax relief, as the sales figures over the course of the past three years show. It is difficult to build a viable VCT sector and facilitate investment in smaller companies if flows are volatile.
	I want to pick up on a commitment made by the Chief Secretary to the Treasury on Second Reading last week in relation to the change in the rate of tax relief. He said:
	To ensure that the industry has a solid foundation for stable fundraising and continued growth, the Bill guarantees the rate of income tax relief for investments in venture capital trusts at 30 per cent. for the rest of this Parliament.[Official Report, 24 April 2006; Vol. 445, c. 36566.]
	I should be grateful if the Financial Secretary would elaborate on that commitment. It is rare for a Treasury Minister to commit to fixing rates so long in advance. In election campaigns, despite the efforts of interviewers, the Chancellor and the Prime Minister have always been evasive about giving any long-term commitment to rates. Will the Financial Secretary explain why that commitment has been give to VCTs in this Budget?
	When the Financial Secretary replies, will he answer three questions? Can he confirm that the Chief Secretary's statement to the House last Monday will hold? What steps can he take to ensure that that will be enshrined in legislation so that investors can plan with confidence for the rest of this Parliament? Is this a symmetrical commitment? That is, will the relief remain unchanged, either up or down, regardless of events? Those are important clarifications that the Financial Secretary should give today to provide the industry with some comfort about the Chief Secretary's commitment. Regardless of whether 30 per cent. is the right or the wrong rate, stability and consistency are vital to the sector if it is to build.
	I end on this note of caution. As I said earlier, the rate of sales of VCTs has been sensitive to changes in the taxrate, and, following the Financial Secretary's reassurances on a previous group of amendments, I would not like to see the small businesses that are meant to be helped by such schemes lose out because investors turn off the flow of funds into VCTs.

Brooks Newmark: The Government's desire to refocus VCT investment is a simple excuse for dealing with the unforeseen cost to the Exchequer of the tax relief currently offered to investors. The cost to the Exchequer of 40 per cent. income tax relief has risen from 220 million to 315 million, nothwithstanding the caveat that those figures are
	particularly tentative and subject to a wide margin for error.
	Treasury Ministers have perhaps got into the habit of not expecting their market interventions to be successful, and when they are, they are caught short. That is the real justification for part 2 of schedule 14.
	The Treasury Committee had the benefit of a simple warning in March 2004 when it heard:
	I think that the Chancellor has to be careful that the history of an awful lot of tax reliefs is that they are set up with very tight restrictions, they have little effect, progressively Chancellors relax the effect, increase the benefits, and then the thing takes off in a completely unexpected direction and has to be stopped.
	The Chancellor lectures that there should be no return to boom and bustit is his favourite stick with which to beat the Oppositionbut what is the result of all these changes if not boom and bust for the venture capital trusts and their investors?
	The Chief Secretary has committed the Government to maintaining the 30 per cent. income tax relief for the life of this Parliament.

Stephen Hesford: Which part of temporary does the hon. Gentleman think that the industry did not understand in 2004?

Brooks Newmark: The hon. Gentleman is absolutely right; the point was made that the relief was temporary. But, as we saw, the industry was flat on its back, at a size of 50 million or 70 million, and it is now successful and has grown. But that has been primarily because of the stimulus that the Government gave by increasing the tax relief from 20 per cent. to 40 per cent., and that is my argument here.
	The fact remains that repetitive changes in the tax relief scheme and, concurrently, the risk profile of VCTs, will undermine investor confidence and prevent legitimate tax planning. Is that really the solid foundation to investment that the Chief Secretary would have us all believe it to be? The justification for the 40 per cent. income tax relief was always couched, as the hon. Gentleman said, in terms of a temporary stimulus that would be the subject of continued review. But it is questionable whether that approach is helpful to investors who are looking to plan their long-term financial affairs. It has denied them the reasonable level of certainty that should be their right.
	My concern as a past practitioner is that there is a high probability that the market will begin to shrink backthe point made by my hon. Friend the Member for Ludlow (Mr. Dunne)notwithstanding the preservation now of a proposed 30 per cent. income tax relief.
	I also question the assumptions that underpin the figure of 30 per cent. Was it chosen simply because it is a midway point between the old 20 per cent. relief and the two-year period of uprating to 40 per cent., or is there a more substantial justification for the compromise? Venture capital trusts are working, and working well, because there is sufficient incentive to stimulate uptake by investors operating in an inherently risky market. We should not arbitrarily change incentives, even for the lifetime of the Parliament, without subjecting them to regular review.

Philip Dunne: I should like to make a couple of brief observations. The industry has been almost silent on the issue since the Budget. The explanation is that it has breathed an enormous collective sigh of relief that the relief rate has gone from 20 per cent. up to 40 per cent., and now down to 30 per cent. rather than 20 per cent., which was the anticipated level after the announcement in the Budget two years ago to which the hon. Member for Wirral, West (Stephen Hesford) referred. As a result, it seems that the Treasury has listened to the industry's explanation that reverting back to the 20 per cent. level would risk cutting off the flow of capital to help bridge the vital equity gap.
	As I said earlier, I am pleased that the Treasury team has not sought to restrict the rate to its original 20 per cent. level. I remain perplexed, however, why it has not kept it at 40 per cent., particularly if the policy objective, to which the Financial Secretary referred earlier, is to help companies gain access to capital that will allow them to grow, to compete to become larger businesses and to compete internationally in the increasingly global marketplace, on which the Chancellor is constantly lecturing us. It is well understood on these Benches that we are competing on a global scale. Why on earth introduce a measure with relatively little financial cost, as was made clear in the response to the hon. Member for South-East Cornwall (Mr. Breed), in this manner? It will have the undoubted consequence of reducing the capital available to such companies. Why not leave it alone at 40 per cent., where it is working so effectively?

Colin Breed: I would like to reinforce what has already been said from the Opposition Benches. I am sure that the Minister is right in saying that the average investment to date has been 3.8 million, based on the 40 per cent. tax allowance. I suspect that it is more likely to have been the 40 per cent. rate than the eligible assets test that encouraged the greater investment. There is general agreement that the investments eligible under the new rules are likely to bealthough they will not always bemore risky in profile than they were, so there may be more justification for maintaining the 40 per cent. rate. At least if it were temporary, it could be extended for one more year and we could see how much more effective the eligible assets test will be. I am concerned that we may face a stop-go problem, irrespective of how much money is invested in the market. Obviously, 30 per cent. is better than 20 per cent., but it seems rather arbitrary. I believe that we could have retained the 40 per cent. rate for one further year while we assessed the effect of the eligible assets test, which would have provided a stronger basis of information on which to judge the success of the scheme.
	I therefore broadly support retention of the 40 per cent. rate, but I accept that the Government have made a judgmentthat is what it is, a judgmentabout whether changes to the rules will focus down on the particular companies that are investing. I accept what the Minister said about going back to the original aims of helping younger and growing companies, but because of the reduction in the incentive, it remains to be seen whether there will be enough money to do so. That remains to be proved.

John Healey: Amendments Nos. 10 and 11 would renew and make permanent the temporary rate of 40 per cent. income tax relief for investments in venture capital trusts. When the Government announced in the 2004 Budget a two-year temporary rate set at 40 per cent. to boost investments in venture capital trusts, it could not have been made clearer that it would expire on 5 April 2006. I made those points very clear in our Committee debates on the Finance Bill that year. It was intended as a stimulus to VCT investments and I am glad that the hon. Member for Fareham (Mr. Hoban) recognised how successful it has been over the past couple of years.
	We have seen record investment in these two years with fundraising of 520 million in 200405 and more than 700 million in 200506. That record fundraising investment led to substantial growth in the VCT industry, in the number of venture capital trusts and in the number of fund managers. I am sure that the hon. Member for Fareham would accept that it is unreasonable to expect the industry to continue this exponential growth and record fundraising increases every year. What it requires now is stability and our proposals are intended to provide just that.

Brooks Newmark: I am sure that the Financial Secretary will go on to deal with some of the points that I made earlier, but I am concerned about his perverse logic. The Government should rightly be congratulated on providing a stimulus for the venture capital trust industry by increasing the tax relief from 20 to 40 per cent. That resulted in clear success, with growth in the sector increasing from 500 million to 700 million. I do not understand why changing the rules will mean the continuance of success, particularly when it was the tax stimulus that helped the industry become a success in the first place.

John Healey: It was just that. It was set at 40 per cent. for two years; it was due to revert at the beginning of April to 20 per cent.; and our judgment now, backed up with a proposal, is that a 30 per cent. rate of income tax relief for VCT investments is appropriate. It represents an increase of 10 percentage points on the original relief rate. As the hon. Member for South-East Cornwall (Mr. Breed) said, that is our judgment in the circumstances. We believe that it will help to ensure a sufficient and stable level of fundraising in the years to come and that it will therefore help to support a sustainable VCT sector in the years to come. It is designed, in response to the issues raised by the hon. Member for Fareham, to be a settled rate. As we discussed in the last group of amendments, it is also important carefully to monitor the application of the VCT schemes and the impact of the package of changes that we are introducing. It is right to keep under review, as we do with all taxes, the operation and impact of the scheme.

Mark Hoban: I hope that I am not about to pre-empt the Minister's next comment, but will he reiterate the Chief Secretary's commitment last week on Second Reading that the rate is designed to last the life of this Parliament?

John Healey: I am explaining that it is designed to be a new, settled and more generous rate than existed in the scheme previously when it was set at 20 per cent. The hon. Member for Braintree (Mr. Newmark) believes that that is not generous enough, but let me put it to him again that this package of reforms related to clause 91 is costing the Exchequer more, not less, in respect of the support it gives to venture capital schemes. It is an additional annual cost of 15 million, amounting to a total annual cost from this year of 220 million of support for venture capital schemes.

John Thurso: Hon. Members of all parties agree on the importance and desirability of investment in venture companies. Clearly, the ultimate measure of success will be the return that the Exchequer gets on its own investment when the companies come to maturity and are able to pay back to the Treasury in tax. Has any estimate been madeI understand that it is early daysalong those lines about what sort of return can be expected from the Government's investment when these companies mature?

John Healey: The hon. Gentleman would not expect the Treasury to micro-monitor the performance of investments by VCTs at that level, but we assess the overall impact of such schemes. That is an important feature of Government accountability, to which I expect hon. Members to hold us.
	The amendments would introduce a permanent 40 per cent. rate of income tax relief, which does not offer a sustainable position for VCTs or a cost-effective position for UK taxpayers. On that basis, I hope that the hon. Gentleman will withdraw the amendment. If not, I must ask my hon. Friends to vote against it.

Mark Hoban: I thank the Financial Secretary for his response to the debate. I am concerned whether the move from a 40 to a 30 per cent. rate will create a stop-go environment within the VCT sector. Other hon. Members have already referred to boom and bust, because the sector has gone from bust to boom, and we cannot know what will happen next until the end of this financial year.
	I have taken on board the Financial Secretary's comments about keeping the matter under review. However, I do not think that his reassurances about the 30 per cent. rate were as copper-bottomed as those provided by the Chief Secretary on Second Reading, and it is important that reassurance is provided. I do not know whether there will be an opportunity on Report for the Financial Secretary to introduce amendments to make it clear in the Bill that the 30 per cent. rate will see us through until the end of this Parliament, because the sector expects the 30 per cent. rate to hold throughout this Parliament. However, given the Financial Secretary's comments, I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.

Mark Hoban: I beg to move amendment No. 12, in schedule 14, page 76 [Vol II], leave out lines 1 to 13.
	The amendment probes the third element of the change to VCTs. Until the Finance Bill was introduced, investors in VCTs benefited from the full income tax relief, if they held their investments for at least three years. The Finance Bill lengthens that holding period to five years, which is one of three measures that could impact on the attractiveness of that form of investment in the VCT market and consequently the flow of funds into VCTs and therefore into small and growing businesses.
	Again, I shall quote Mr. Robert Drummond, who is a former chairman of the British Venture Capital Association:
	With the 30 per cent. income tax relief rate the Chancellor has found a compromise between maintaining the current level and returning to 20 per cent., but this change together with the increase in the minimum holding period from three to five years, appreciably alters the risk-reward profile of private equity investment by personal taxpayers.
	In the context of the interlocking web of proposals, Mr. Drummond is arguing that the holding period may have the impact of discouraging investment in VCTs.
	I can see the benefit for VCTs and companies that receive investment of increasing the holding period from three years to five years, which will give both the VCTs and the companies reassurance, stability and the ability to plan for the long term. However, it is difficult to strike a balance, because one might end up with a scheme that is perfect for the interests of the companies and VCTs but that is not sufficiently attractive to investors.
	I seek an explanation from the Financial Secretary on why the five-year period was chosenthe next amendment proposes lengthening the holding periodbefore a VCT investor can gain the full benefit from the reduced tax relief.

Philip Dunne: I want to support amendment No. 12 and make a couple of observations from my experience about the investor base in VCTs. Increasing the holding period for an investor from three years to five years will unquestionably reduce the attractiveness of the investment to private investors. Investors in VCTs are, by definition, individuals who have reached a certain stage of maturity in their investment life. I hesitate to say that the majority of those individuals are pensioners, but judging by those who turn up at the annual general meeting of my VCT, the majority who take an active interest are pensioners, although that may be because they have readily available leisure time in which to attend AGMs.
	The manager of the VCT group with which I am involved has analysed the average age, investment expectation and holding period of investors in VCTs. People invest in VCTs for a number of different reasons: some are interested in capital appreciation in a tax-free environment; some are interested in income in a tax-free environment; and some are interested in a combination of the two. However, the notion that they would put at risk the tax relief available on their initial subscription if they were to seek to sell their holding within five years will undoubtedly lead a number of investors to move away from VCTs. Those investors will not necessarily include larger investors, who have further opportunities for portfolio diversification and may invest primarily for the tax reliefs, but a lot of small investors want exposure to smaller companies and feel that they are doing what the Government want by helping to finance young, energetic companies run by entrepreneurial people, which contributes to the growth and revival of the British economy. Indeed, some people choose to invest in VCTs for altruistic reasons. Increasing the holding period is the most significant measure among those proposed by the Government to change the VCTs regime, and it will restrict the attractions to investors and therefore limit the Government's policy objectives.

John Healey: We propose to lengthen the shareholding period for investments in VCTs following formal and informal representations from the VCT industry, which is the direct answer to the hon. Gentleman's question about the five-year period.
	Mr. Andrew Holmes, chairman of Quester Capital Management Ltd, is not untypical. He wrote to the Chancellor in January, suggesting that we reinstate the original five-year holding period, which he described as one method of
	making the whole scheme more clearly matched to the realities of building young companies over the longer term.
	I point out to the hon. Member for Ludlow (Mr. Dunne) that that is the principal purpose of those schemes. There was an interesting reaction from the industry on the holding period. Ben Yearsley of Hargreaves Lansdown said:
	It means there will be fewer short-term investors hoping to making a quick returnthat is not a bad thing.
	The announcement was widely welcomed. The Sunday Times reported:
	The increased holding time had been welcomed by advisers, many of whom believed that the three-year rule encouraged investors to think of VCTs as short-term investments when they really should be held for a longer time.
	Unlike the application of the 70 per cent. rule, which, after April 2007, will apply to all funds, including funds raised before this financial year, the change to the holding period will apply to new funds, not to funds raised before 6 April 2006. There is broad consensus in the investment community that the change is positive: equity investments in small firms need to be longer term to provide stability for the firms in receipt of investment, and sufficient time is required to generate genuine gains for the investor. I hope that the House accepts those arguments and the fact that we are making the right changes in clause 91. I therefore hope that the hon. Member for Fareham will withdraw his amendment.

Mark Hoban: In response to my hon. Friend the Member for Ludlow (Mr. Dunne), it is a relief to discover that there are similarities in the audiences who attend the AGMs of all sorts of organisations, whether they are VCTs or otherwise. It is reassuring to learn from the Financial Secretary that managers of VCTs have responded to the proposal, and have encouraged the extension of the holding period. As I explained, I understand why they sought that extension. As was said earlier, it is important that we ensure the stability of the VCT industry. On that note, I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.

Mark Hoban: I beg to move amendment No. 5, in schedule 14, page 77, line 3 [Vol II], at end add
	PART 6

Inheritance tax

9 In section 104(1)(a) of IHTA 1984 for (b) or (bb) substitute (b) (bb) or (bc).
	10 In section 105(1) of IHTA 1984 after subsection (bb) insert
	(bc) eligible shares in a venture capital trust as defined by section 842AA(14) of the Taxes Act 1988;

PART 7

longer holding periods

11(1) Schedule 15B to The Taxes Act 1988 is amended as follows.
	(2) In paragraph 1, after subparagraph (2) insert
	(2A) An individual shall also be eligible for relief in the 6th year after subscribing for eligible shares if those shares are held by him at the 6th anniversary of the subscription.
	(2B) The amounts on which an individual shall be taken for the purposes of sub-paragraph (2A) above to be eligible for relief shall be the original subscription amount for such shares.
	(3) In paragraph 3(1)(b) leave out those shares were issued to that individual and insert the shares became eligible for relief under paragraph 1(2) or (2A) above. But relief claimed for a subscription of eligible shares more than five years before the date of disposal shall not be withdrawn..'. Briefly, the amendment falls into two parts, and I shall deal first with proposed new paragraphs 9 and 10. The VCT sector faces a challenge, and we must encourage a secondary market in VCT shares. As we know, the initial subscriber benefits from tax relief, but subsequent purchasers do not. I am not suggesting that income tax relief should be made available to subsequent purchasers, but we should consider an inheritance tax treatment of shares in VCTs, as that could make them more attractive to purchasers in the secondary market by extending the IHT treatment to the underlying shares or the investments in unlisted companies. Shares in such companies qualify for relief from IHT business property relief, and the proposal would obviously increase their attractiveness to investors by encouraging them to hold on to them. I wish to encourage the secondary market and discourage initial investors from realising their investment by building on the stability that we discussed earlier. Holders should therefore be encouraged to retain those shares in their estate in the knowledge that the business property exemption rule applies to shares in VCTs. Secondly, part 7 represents a return to the subject of amendment No. 12, which dealt with the extension of the holding period from three to five years, but it approaches it from the opposite direction. Is five years too short a period? Should we incentivise investors to hold shares for a longer period of up to 10 years and stagger relief, rather than providing it up front? This probing amendment is therefore the second part of my argument. I should be grateful if the Minister commented on the appropriateness of the IHT treatment of shares in VCTs, and highlighted the treatment of the underlying shares in which VCTs invest.

John Healey: As the hon. Member for Fareham (Mr. Hoban) said, the amendment probes the notion of introducing inheritance tax business property relief for shares in venture capital trusts. It aims, too, to introduce a second tranche of income tax relief for investments in VCTs on the sixth anniversary of an individual holding that investment, but neither of those proposals would benefit the VCT scheme. A second tranche of income tax relief would not encourage any additional investment in small growth companies, and it would not contribute anything to the objectives of the VCT scheme. The hon. Gentleman will accept that his amendment involves a substantial deadweight cost, as it would provide an unnecessary incentive to investors in VCTs that were performing well. More worryingly, it would create an incentive for individuals to maintain their shareholdings in poor-performing VCTs, instead of exiting the investment for solid commercial reasons at the appropriate time. The amendment would not restrict relief to new shares, but it would enable existing investors to claim additional relief without contributing further fundsa cost that the Government cannot justify.
	On the inheritance tax proposal, income tax relief is the best incentive for investments in VCTs, as it is available and attractive to the widest possible pool of investorssomething that cannot be said of the inheritance tax relief proposed by the amendment.Finally, on inheritance tax, VCT shares are quoted shares listed on the main market of the London stock exchange. Quoted shares currently qualify for inheritance tax business property relief in the exceptional circumstance that the quoted company is still in family control. That is clearly not compatible with VCT schemes, so we do not accept that there is a case for an extension of business property relief to the VCT scheme. On that basis, I hope that the hon. Gentleman will withdraw his amendment but, if he does not do so, I urge my hon. Friends to vote against it.

Mark Hoban: Once again, I am grateful to the Financial Secretary for setting out the Government's case for not extending IHT relief by designating VCT shares as business property. I accept his argument, as well the argument about changing the structure of the income tax relief available to investors who held their shares beyond the sixth anniversary. Bearing in mind his explanation, I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.
	Schedule 14 agreed to.

Clause 106
	  
	Conditions for company

Mark Francois: I beg to move amendment No. 24, in page 97, line 13 [Vol I], at end add
	'(1A) Not later than 31st March 2007, and annually thereafter, the Chancellor of the Exchequer shall lay before Parliament a report of the number and estimated market capitalisation of the companies that have given notice to register as Real Estate Investment Trusts under section 109.'.

Michael Lord: With this it will be convenient to discuss the following amendments: No. 4, in page 97, line 23 [Vol I], at end insert
	'or are permitted to be dealt in on the Alternative Investment Market of the Stock Exchange.'.
	No. 23, in page 97, line 24 [Vol I], leave out subsection (6).

Mark Francois: Clause 106 is arguably the key part of part 4, in that it defines some of the principal conditions that companies must meet in order to qualify for real estate investment trustREITstatus. That is why we selected it for debate in a Committee of the whole House. I am sure, however, that we will have plenty of opportunity to explore the other 42 clauses relating to REITs in more detail upstairs in Committee. I look forward to debating the subject with the Economic Secretary in a few weeks' timeI genuinely hope that it will be him.
	As I said on Second Reading, Her Majesty's Opposition welcome the introduction of REITs in principle, having pressed the Government to adopt such a structure for several years. However, we are generally concerned to get the detail right, and we will table amendments that are designed to ensure that, from the outset in January 2007, the concept operates in the positive interests of the United Kingdom economy. That also applies to the amendments that we are debating today.
	My first question to the Minister concerns the detailed regulations that the Government have offered to provide, which are designed to fill out some of the detail of how the provisions in the Bill, including clause 106, will operate in practice. When are those regulations likely to be published? Specifically, are they likely to be available before the Bill goes into Standing Committee next week? It would obviously be beneficial to have sight of the regulations, and ideally some time to digest them and consult on them, in order to give context to many of the clauses that we will subsequently be expected to debate upstairs. I am not alleging any skulduggery on the part of the Government, but merely saying that it would be handy to have a definitive date for when the regulations are likely to be published. Perhaps the Minister can seek inspiration on that point and let the Committee know before we conclude our proceedings on REITs.
	The concept of REITs has been around for some time, having been introduced in the United States as far back as the 1960s. Similar vehicles exist in several other countries, including Australia, Japan and European countries such as France. Germany is also in the process of considering the introduction of a REITs regime, although I understand that its preparations are not as far forward as our own.
	In essence, a REIT is designed to facilitate collective investment in property, which by its very nature often requires large amounts of capital. REITs will enjoy key tax advantages that create a transparency between the ultimate investors and the underlying investments, and they will be exempted from corporation tax on property income and from capital gains. In return, REIT companies must meet certain key conditions, including that 75 per cent. or more of their assets must be investment property, that 75 per cent. or more of their income must be rental income, and that at least 90 per cent. of their profits must be distributed as a dividend to their investors, who will then be taxed on those dividends as property-related income. As the explanatory notes to clause 106 state:
	The company conditions are designed to restrict the scheme to publicly listed companies with their equity and debt finance arranged in such a way as to ensure that tax-exempt profits are paid out to shareholders as taxable profits under Schedule A.
	However, the Government have laid down in clause 106 several additional conditions that a company must meet in order to qualify for REIT status and the attendant tax benefit that it confers. Those six key qualifying conditions can be summarised briefly as follows. First, the REIT company must be resident in the United Kingdom. Secondly, it must not be an open-ended investment companyan OEIC. Thirdly, it must be quoted on a recognised stock exchange. Fourthly, it must not be a close company. That is usually defined as being controlled by five or fewer people, but I give the Minister notice that there is a particular technical point on that, to which I want to return in a few minutes. Fifthly, it must have only one class of ordinary shares, plus potentially only non-voting fixed-rate preference shares. In other words, it must be confined to only those two types of share capital. Sixthly, its borrowing must effectively be limited to reasonable commercial terms.
	There is an additional point about the specific importance of the clause 106 conditions. Some other conditions for which the Bill provides, such as the income acid test and the gearing restriction, if breached, do not necessarily result in the withdrawal of REIT status. However, the strictures of clause 106 conditions could be harsher in that a breach would result in a company being expelled from the REIT regime. To use a footballing analogy, a breach of some of the non-clause 106 conditions can result in a bookinga yellow cardbut a breach of one of the clause 106 conditions is currently a sending-off offence. A company would be red-carded for such a breach.
	Given the added importance of those conditions, our amendments are designed to elicit further information from the Government about how some of them would work in practice and whether any flexibility is envisaged for their operation. As we know from the consultation exercise, flexibility has been introduced for interpreting some of the other conditions in the Bill.
	Amendment No. 4 would expand a third of the qualifying conditions in clause 106 to include property investment companies that are listed on the alternative investment market of the stock exchange, or AIM, as it is more popularly known. I understand that there was   something of a problem for the property industry during the consultation process. We are therefore understandably keen to press the Government on their thinking on the matter. We have received some representations about expanding the concept even for unlisted companies. However, for the moment, we have decided to confine ourselves to pressing the matter in relation to AIM.
	AIM-listed companies already provide a legitimate form of collective investment, so why have the Government decided to exclude them from the REIT regime from the start? On a practical level, property companies that are registered as REITs are likely to enjoy significant tax advantages over thoseusually smallercompanies, that are denied the advantages that REIT status confers. There could therefore be considerable consolidation in the market as REITs take over other property companies, such as those on AIM, which cannot qualify for REIT status. That is potentially unfair and, over time, could mean that the UK property market was increasingly dominated by a relatively small number of large REIT companies. I presume that the Government did not intend that. We would move in the direction of an oligopolistic market and I am not sure that Ministers want that.
	Moreover, AIM-listed companies might come under pressure to convert to a full stock exchange listing before they were ready for it, principally to qualify for REIT status, thus potentially causing a distortion in the orderly evolution of the market sector. Why not, therefore, expand the condition to cover at least AIM-listed companies, which meet all the other conditions that the Government have set, and thus facilitate greater diversity in the REITs market available to investors? There is a strong common-sense argument for doing that.
	The British Property Federation has provided a note on the subject. It argues:
	The property industry in the UK believes the consequence of limiting REITs to listed companies will be to unnecessarily limit the development of REITs because it heightens the barrier for new entrants to the UK REIT regime and as a consequence makes it that much more difficult for new REIT companies to form. Clearly, this has consequences for those seeking to establish new investment vehicles in traditionally under-invested property markets, such as the residential private rented sector.
	I am sure that the Government want to boost the residential private rented sector, not least to provide a supply of housing for those who find it difficult to obtain somewhere to live. It is worth bearing in mind that the BPF is intimating that, if the companies are not allowed to obtain REIT status when they are on AIM, that might hinder the objective that I outlined.
	Furthermore, the BPF points out:
	The restriction is particularly difficult to understand when there are alternative markets that are an established feature of the UK collective investment market, including for example the Alternative Investment Market. AIM is specifically designed to help emerging companies that wish to be open to public investment yet would find it difficult to sustain themselves on a recognised stock exchange at an early stage in their development. The proposed Amendment
	that is, our amendment
	seeks therefore to open up the current Clause 106 legislation to allow companies listed via AIM to convert to REIT status. This would enable the development of new or smaller companies into the REIT market and thus help to ensure REITs are a sustained successful investment vehicle across the property markets.
	The BPF summed up its position on this question in the following terms:
	In summary therefore, our main concern with Clause 106 as it is written is that while it is likely that a number of existing listed property companies will convert to the new REIT regime, the provisions do not cater for the growth and enhancement of this market which will in turn bring forward investment benefits and opportunities to improve the quantity and quality of property investment in underinvested markets. In short, by so restricting the rate regime to only 'recognised stock exchange' listed vehicles the government may inadvertently smother the ability of the market to develop.
	I should say to the Minister that I do not think that that is in any way polemical or over the top. I genuinely believe that it is a perfectly reasonable point.
	On 5 April 2006, the Financial Times published a special supplement entirely devoted to the subject of REITs, and it made very interesting reading. It gave a generally positive welcome to the concept. However, it also contained an article by Peter Damesick, the head of research at C.B. Richard Ellis, which was interestingly entitled:
	Distortions the Government needs to remove.
	In it, Mr. Damesick argued the following:
	The rules further limit the pool of potential Reit creators by excluding companies listed on the Alternative Investment Market (AIM). An AIM listing could serve as an incubator for small Reit start-ups, potentially capable of growing into larger Reits with a full stock market listing. The hurdles put in the way of Reit creation stand in marked contrast to the provisions introduced in the US in the early 1990s to enable the easy transition of private property companies, trusts and partnerships into the listed Reits sector.
	Importantly, he then adds:
	These proved fundamental to the US market's subsequent rapid growth.
	The Financial Times estimates that more than $300 billion is now invested in US REITs, and notes that spreading the listing base for the concept was important in generating that substantial degree of investment. That is presumably something that the Government would eventually like to emulate, at least on a relative scale for the United Kingdom. I think that $300 billion worth of investment in UK REITs within the first couple of years might be a rather ambitious target. Nevertheless, I am sure that the Government want to encourage as much investment into UK REITs as is practically possible. I would therefore stress to the Minister that the US experience has shown that widening the listing base has been instrumental in encouraging additional investment and in getting the concept to take off. I am informed that it was in the 1990s that it really took off in the United States.
	The alternative investment market is generally regarded as a success story and, if the Minister will allow me to say so, it was a Conservative Government who introduced it in 1995. We would like to make REITs a success story too. Therefore, we would genuinely like to know why the Government are reluctant to consider expanding the REITs concept to the alternative investment market. We would like to hear their explanation. If they will not concede this point this afternoonI hope they willwill they at least make a commitment to keep the question under review once the REIT regime rolls out in practice next year, and to take another look at the matter once the regime is up and running? I look forward to hearing the Minister's response to this amendment with particular interest.
	I turn now to the reasons behind our amendment No. 23, which relates to close companies. I should stress that this is a probing amendment, but it would, in principle, delete the fourth of the six qualifying conditions from clause 106. That condition is that a REIT must not be a close company, which is broadly defined as a company that is controlled by five or fewer people. If the other conditions remain in place and the company remains publicly quotedeither on the full stock exchange or AIM, as previously discussedwhy, in principle, should a company be forced out of the REIT regime because it is controlled by five or fewer people? We would be interested to hear the Government's thinking. For instance, a company that breaches that condition would automatically be removed from the REIT regime. Companies might therefore be required to monitor their shareholdings continuously to ensure that the condition is not breached. Because the actions are to some extent   outside the company's control, however, the management might not be able to anticipate or even prevent such a breach, even though, were it to occur, it might cost them their REIT status, and in some circumstances it might not be their fault.
	During the consultation exercise, the Government conceded to some extent on a different condition whereby they originally intended to limit individual shareholdings in a REIT to 10 per cent. Some flexibility has been introduced into the Bill whereby regulations will restrict distributions to holders of more than 10 per cent of shares in a REIT but, interestingly, will apparently not remove REIT status if the 10 per cent. limit is breached, as the condition in clause 106 relating to close companies would.
	The Government have therefore given way to some extent on the 10 per cent. limit, and we appreciate that they might be reluctant to allow a single shareholder to control a REIT. We understand that that was a particular concern of the Government's throughout the consultation process, and we are not challenging that point directly. There is a difference, however, between one and five. Can the Economic Secretary therefore explain why the close company condition is still such a necessary one, especially given that if a company fails to meet it just once during a year it might lose its REIT status automatically, which could cause uncertainty for both the company's directors and potential investors. Investors might be worried about putting money into a REIT company if they thought that they might inadvertently breach that condition and therefore lose the REIT status and some of the tax advantages conferred by it. That is a reasonably important point, and we genuinely want to probe the Government's thinking on it.
	In addition, I want to raise a technical point in relation to amendment No. 23 and close companies, as I tried to intimate to the Economic Secretary when I began my remarks. A close company is defined in section 414 of the Income and Corporation Taxes Act 1988. Broadly, such a company is controlled by five or fewer shareholders. There are exemptions to that rule of thumb, however, as I am sure the Economic Secretary is aware. For instance, a company that would otherwise be a close company is not so if it is controlled by another company that is not close. As the British Property Federation, which has asked me to raise this question, has pointed out:
	As currently drafted the provisions would seem to catch shares held by an exempt pension fund as well as a non-close company. This is because section 414(5) is extended to pension funds by section 414(7),
	of the Income and Corporation Taxes Act 1988. The BPF assumes that that is intended, as do I.
	As one of the intentions of REITs is, I presume, to attract investment by institutional investors, not least pension funds, it would be helpful to clarify that question, either this afternoon or perhaps when the guidelines are published. I admit that the point is rather technical, but that is partly what this process is for, and it would be helpful for pension funds particularly to have any uncertainty removed. Perhaps the Economic Secretary will seek some inspiration and respond on that question this afternoon. If not, perhaps we will hear from him when the guidelines are publishedin the near future, I hope.
	Amendment No. 24 asks for the Chancellor to prepare a report to Parliament by March 2007, and annually thereafter, on the operation of the REIT regime. The report should include the number of companies that have applied for REIT status, under the auspices of clause 109, and should also record their market capitalisation. The purpose is to monitor the initial operation of the scheme, and to report to Parliament on its progress
	The first report would be due within three months of REITs' coming into force in January next year. I realise that that is quite a tight time scale, but there is an intention behind it. It would provide an early indication of the popularity or otherwise of the concept: we would see an early snapshot of the degree to which REITs are catching on in the United Kingdom. I think that that would be helpful, given that a number of peoplenot least Members of Her Majesty's Oppositionhave been pushing the Government to adopt the concept for a number of years.
	Once the idea has bedded in, it would also be helpful to have annual updates on its progress, not least so that we can assess whether REITs are generating the income for the Treasury that it has estimated will be forthcomingchiefly from the entry fee for property assets which are being placed in REITs, which I think is now set at about 2 per cent. I appreciate that that fee can be paid in instalments over a period of four years, and that when we look at the figures for the first few years, if a number of companies that elected to pay in instalments are doing so, the full amount of money may not be recorded because some may only have paid part of the fee; but I think we can all allow for that statistical caveat. It would still be helpful information for the House, and indeed the market.
	The Red Book estimates that the income from REITs to the Exchequer is likely to be some 320 million by the end of 200809. In other words, the Treasury thinks that REITs will raise about a third of a billion pounds between January 2007 and then. It would be helpful to have a specific reporting mechanism enabling Ministers to tell the House whether the targets had been met, allowing for the caveat relating to the four-year spreading of the 2 per cent. entry charge.
	As I said at the outset, we want the scheme to be launched successfully in January 2007, and we are prepared to work positively with the Government to that end. I hope that the Economic Secretary will accept that commitment in the spirit in which it is genuinely offered.
	Clause 106 forms a key part of the REITs regime in defining some of the headline conditions that a company will have to meet to qualify for REIT status and the attendant tax advantages that it confers. We want to press the Government on why the concept should not be expanded to include companies listed on the alternative investment market, why they think that close companies should be barred from REIT status, and whether they would consider producing an annual report on the progress of the concept once it is up and running.
	I look forward to hearing from other hon. Members and, I suspect, from right hon. Members, following the speeches on Second Reading. I particularly look forward to the Economic Secretary's reply, to which I shall listen with interest.

Julia Goldsworthy: We shall deal with the broader issues connected with REITs during the stand part debate and during debates on the remaining clauses in the Standing Committee, so I shall attempt to be brief.
	We think that amendment No. 24 provides a welcome way of assessing the impact of the number of commercial companies that register with the scheme. It addresses concerns that were raised more generally on Second Reading, when it was pointed out that many existing commercial property companies appear keen to convert to REIT status. The fact that there are large numbers of those companies indicates that the incentives for businesses to convert may be greater than the initial revenue figures in the Red Book suggest.
	The Red Book figures show that the introduction of REITs will bring in revenues of 35 million, 155 million and 135 million, respectively, in the three years from 200607. Those revenues include the 2 per cent. entry charge that will be imposed on companies opting for REIT status, so the early years will flatter the fiscal position. The amendment would help to monitor the number of companies entering the scheme each year, but will the Minister provide a longer-term projection of predicted revenue?
	Ultimately, companies will choose to become REITs if they forecast that their entry charges eventually will be outweighed by future tax payments. What work have the Government undertaken to assess the net impact of the introduction of REITs, in terms of entry charges and changes to tax revenues? The amendment would help us understand a little more about how the scheme affects behaviour, but we need a clearer understanding of the wider fiscal impact.
	I turn now to amendment No. 4. We do not want REITs to be extended to the alternative investment market at this stage, because we understand that their whole point is to provide a low-risk, stock market avenue for investment in property. The AIM carries a higher risk and is less regulated, and therefore undermines that principle. The fact that it lists a rather oddball property investment company based in Bulgaria underlines the need for caution, and points to the higher unknown risk that AIM investments could present. Last year's fiasco with self-invested personal pensions shows that it is important to get first principles right before consideration is given to extending the scope of the REIT scheme.
	In the future, it may be appropriate to consider ways to make the scheme more flexible. The alternative investment market might achieve that, but it is important now to make sure that the REIT scheme is achieving what was intended and that it is functioning properly.

Mark Francois: The SIPPs problem was the fault of the Government, not of AIM or the stock exchange. The hon. Lady had a bit of a pop at AIM, which most people think has been quite a success. Do the Liberal Democrats consider investment in AIM-listed companies to be unsafe in principle?

Julia Goldsworthy: Absolutely not. My point is that such companies are a higher-risk investment, whereas the REIT scheme offers people a lower-risk opportunity to invest in property. That is why it is not appropriate to include AIM-listed companies in these provisions.
	Amendment No. 23 deals with the definition of a close company, and would remove clause 106(6), which prohibits a close company from becoming a UK REIT. A close company is defined in section 414 of the Income and Corporation Taxes Act 1998; broadly speaking, it is one that is controlled by five or fewer shareholders, as we have heard, but the definition in clause 106(6) is wider than was the case in the draft legislation, which contained a 10 per cent. shareholding restriction.
	It is important that some form of restriction is retained, to ensure that no individual is able to invest in property for his or her personal benefit. That is why the close company restrictions have been included, but the reasonable concern has been raised that the Bill will require companies to monitor their shareholders continuously to ensure that the condition is not breached. Clearly, however, the actions of the shareholders are outside the REIT's control, and I would appreciate the Minister telling the House how a trust is supposed to anticipate or prevent such breaches.
	We believe that deleting clause 106(6) altogether, as proposed in amendment No. 23, is too drastic and could make the scheme vulnerable to the abuse that is tax avoidance. However, if the clause is to be retained in its existing form, the Government will need to explain, perhaps in Standing Committee, how they expect REITs to monitor and enforce the regulations. They should also specify the penalties if the conditions are breached, because automatic exclusion of a trust could increase the risk associated with investment and serve to put investors off.
	This matter would benefit from consideration in Standing Committee, where we could study the details more closely, in conjunction with the other clauses relating to REITs. We share some of the concerns behind the amendment, and look forward to the Minister's response.

George Young: I begin by commending my hon. Friend the Member for Rayleigh (Mr. Francois) on his thoughtful and well-informed speech. I refer, as I did on Second Reading, to my entry in the Register of Members' Interests.
	I hope that the Minister will be able to respond to one matter raised by my hon. Friend; the elephantine gestation period for real estate investment trusts. We spent most of yesterday discussing some ill-considered proposals in the Finance Bill that were rushed through with the minimum of consultation, whereas today we are debating a relatively non-controversial proposal that has all-party support and has been around for about 10 or 12 years.
	It would be helpful if on clause stand part, in response to the debate, or in Standing Committee the Minister responded to some of the matters that were raised on Second Reading but which, understandably, he did not have time to address. Will he say why we have had to wait so long for a proposal that is not particularly controversial, which replicates the investment trust regime and REITS, and which, as my hon. Friend said, exists elsewhere?
	I shall make two points; the first is on dead-weight costs, which were mentioned in the Financial Secretary's winding-up speech in the previous debate. I do so in the context of amendment No. 24, which asks for an annual report. Do the Government believe that REITs will simply be a new vehicle for existing activity or a vehicle that encourages additional activity that would not otherwise take place?
	My impression from reading the consultation papers and some of the debates on the subject is that most of the interest in REITs comes from existing, well-established companies that envisage reversing into REITs and carrying on doing roughly what they were going to do before. The original concept of REITs was somewhat different, however; it would be a new vehicle that promoted additional investment that would not otherwise take place.
	I was interested to read what my hon. Friend and the hon. Member for Falmouth and Camborne (Julia Goldsworthy) said about the AIM market. My hon. Friend said that new supply and additional investment are more likely to come from smaller companies that want to grow than from well-established companies that may simply be holding companies for existing assets rather than developers. The argument about AIM is finely balanced but which side one comes down on depends to some extent on what one sees as the objective of that vehicle.
	It would be helpful if the Minister explained either in the annual report that I hope we are about to impose on him or, more economically, in his response to the debate, to what extent the proposal is a new badge on something that is already happening or an opportunity for fresh investment that would otherwise not have taken place.
	My second point is on the balance between commercial and residential investment. I touched on the matter on Second Reading and I hope that it will be raised in our debate on the proposed report in amendment No. 24. As I said on Second Reading, the original thought behind REITs was to promote residential investment, where there is more pressure on the demand side; one cannot directly invest in residential property, whereas there are several vehicles for investing in commercial property.
	Although the original thrust of the debate about REITs was on the residential side, at some point it was diverted into a preoccupation with the commercial property side. I have nothing against that. I am in favour of the proposal, but the Barker report, in which the Treasury had an enormous interest, was very interested in promoting additional supply on the residential side. So far, we have not heard from the Government on the extent to which they hope that REITs will feature by generating fresh, respectable, long-term institutional investment in residential property for rent as opposed to being a vehicle for commercial properties.
	In conclusion, I hope that we can tempt the Minister into philosophical mode and into raising his sights beyond the nitty-gritty of the amendments and that he will put the clauses into the context of where the Government are heading, what they hope to achieve, and the balance between residential and commercial property.

David Gauke: There is a great deal of consensus on this issue. All parties want REITs to come in and they want the idea to succeed.
	The Government have set out in their regulatory impact assessment some of the reasons for REITs and it specifically focused on the weaknesses within the property market and the areas where they could be improvement. In particular, it highlights the lack of choice for small investors, poor liquidity, the potential for more efficient use of commercial property, variable standards of provision in the private rented sector, high levels of debt financing and tax distortions. The Government's intention is to address those problems through the use of REITs. Paragraph 2.8 of the RIA states:
	The Government believes that the proposed vehicle addresses all of the above points by introducing more choice for small investors, allowing more liquidity in the market, giving potential for more efficiently and professionally managed property, reducing dependency on debt for financing and removing tax distortions.
	I do not think that anyone would particularly disagree with that.
	We can also add the other factors that are favourable for REITs. There is a growing appetite for such products and their introduction should be good for the City of London and make it the leading REIT centre in Europe. We would all welcome that.
	As my right hon. Friend the Member for North-West Hampshire (Sir George Young) pointed out, however, it has taken a great deal of time for us to get where we are. The idea of REITs has been around for a long time. In recent history, the industry made a great push to introduce them in 2000. That was unsuccessful, but the move was revived in 2003. Since then, there have been various discussion papers, culminating in this year's Budget with a view to the first REITs being available in January 2007. I used to work as a lawyer in a City firm and I know from personal experience that there was a great deal of expectation a couple of years ago that REITs were about to take off. Everyone was gearing up to prepare for that. However, the move slowed down and nothing very much happened.
	There are one or two concerns about the delay. In that period, a lot of money has gone offshore. In particular, a number of Jersey property funds have been created that catered for something that perhaps could have been catered for by REITs. That is a concern for the City and a worry for us all. We are, to some extent, playing catch-up. In the past couple of years, Jersey has been able to develop as a market in this sector and it has gained reputational benefits perhaps at the expense of ourselves, because we are slightly behind the game.
	It is important that we get the legislation absolutely right, because there is also the concern that the delay may in some way indicate the Government's half-heartedness. I hope that, by scrutinising the Government's position in this debate and upstairs, they will be able to make it absolutely clear that they are committed to REITs and see them as a long-term prospect.
	Yesterday, we discussed issues such as the home computing initiative, in which something comes in with a tax incentive that is then taken away. That leads to a degree of uncertainty that is bad for investors and the industry. When there is uncertainty and changes, we do not attract the same level of investment. It is important for businesses to look long term and Governmentsparticularly this Governmentmove in a short-term fashion. I hope that we will in the debate obtain reassurance from the Government on their attitude to REITs.
	It has to be said that there are positive aspects to the proposals. There is no doubt that the 2 per cent. conversion charge is what the British Property Federation was looking for. There is no criticism of the Government for introducing that. It is encouraging, and I hope that the Economic Secretary will continue in that vein later in the debate. It is important that we get this right and that we have close scrutiny of the proposals to ensure that there is a long-term commitment and that we do not have to change things in a couple of years. That would lead to the stability that would enable the REIT market to develop.
	Turning to the amendments, I will address the issue of the alternative investment market. With a number of colleagues, I had a meeting with representatives of the London stock exchange just a week or so ago. The message is that AIM is a great success story. It has really taken off. The number of companies listed on AIM has expanded very rapidly in recent years and it has been a very useful attribute to the London stock exchange. We have, in the City institutions, something that we can be proud of and that is hugely important to the economy of this country. I hope that no hon. Member will suggest, in the course of the debate, that AIM is in some way dodgy or disreputable, or in any way something that we should be slightly embarrassed about. There may well be good arguments as to why REITs should not be listed on AIM, although, on the face of it, many REITs will be quite small entities and one would think that perhaps it might be appropriate to list them on AIM. I would be grateful to hear the views of the Economic Secretary on that point.

John Thurso: I should declare my entry in the Register of Members' Interests. I own 2 per cent. of an AIM-listed company; it has not done very well. Surely the point is that although AIM is an excellent market that has fulfilled its remit extremely well and is therefore to be congratulated and supported, there are a number of important fund managersparticularly in the case of pension fundswho, for reasons of policy, decide not to invest on AIM and to confine their investment to the main market.
	The point of REITs is, among other things, to give those fund managers an opportunity to invest in an investment vehicle for property without the risk of being in a property company with developments, or being directly involved in property. Therefore, is it not perfectly appropriate to commence the scheme on the main market first, see how it goes and then extend it at a later stage to AIM, if thought fit?

David Gauke: The hon. Gentleman may have a fair point, but perhaps the decision as to whether it is in the interests of a particular company to list on AIMhe may well be right that in many cases it will not be because certain investment managers will not invest in AIM-listed companiesshould be left to the company itself, rather than necessarily including that matter in the rules. However, as I said, I would be interested to hear the views of the Economic Secretary.
	If we are considering REITs as a whole, one question that needs to be looked at in the longer term is whether we go further than listing on AIM and allow room for unlisted REITs. I know that the Royal Institution of Chartered Surveyors is looking at that as perhaps the next step. Again, I would be interested to know what the long-term views are.

Brooks Newmark: It may be instructive to look at the United States, which has a far more mature real estate investment trust market, where unlisted REITs outnumber listed REITs by a proportion of four to one.

David Gauke: That is an invaluable point and I am most grateful to my hon. Friend for his knowledge and insight into all things financial and all things American.
	On close companies, which my hon. Friend the Member for Rayleigh (Mr. Francois) addressed so thoroughly, one can look at that issue in conjunction with the 10 per cent. ownership rule, which, to use his terminology, falls within the yellow card regime as opposed to the red card regime that applies to close companies. One of his points was that REITs are not a unique product in the sense that there are many international comparisons. We have just heard a comparison with the United States from my hon. Friend the Member for Braintree (Mr. Newmark). It might be worth while to examine some of those international comparisons, because there are different regimes in different countries.
	On the internet this morning, I spotted a document produced by Ernst and Young, which is a summary of the tax treatment of REITs internationally. I will quote from it, but I should issue a word of warning; this is by no means a criticism of Ernst and Young. In my previous career as a lawyer, I was involved in collating international advice from various jurisdictions and then trying to summarise it in one document.
	That task is notoriously difficult to perform. We are dealing with a complex area, and it is often difficult to simplify information and obtain advice from jurisdictions in which there may be language difficulties and considerable differences that are not always appreciated when one person is collating information. However, it is interesting to note the different requirements on ownership, which relate directly to the question of close companies.
	In Australia, there are no minimum or maximum shareholder requirements. However, other international regimes impose more limitation or control on the ownership structure of a REIT, or equivalent vehicle, than that proposed for the UK. For example, the document says that, under the Canadian system, real estate investment trusts
	must be qualified for distribution to the public and must have at least 150 unitholders,
	which is a considerably larger number. A rather different situation applies in Brazil. The document states:
	Construction companies may not hold a greater than 25 per cent. participation,
	but there otherwise does not appear to be any great qualification. If hon. Members are interested in Costa Rica, the document says that 25 or more investors are required, as I am sure that the Economic Secretary is well aware.
	In Israel, the document says:
	At least 50 per cent. of the company's voting rights should be held by more than five shareholders.
	My hon. Friend the Member for Rayleigh said that Japan already has a relatively mature REIT market. The document says that, in Japan, the
	three largest investors must own less than 50 per cent. of the units
	and that the
	10 largest investors must own less than 75 per cent. of the units in order to be listed on the Exchange.
	In Korea, the document says:
	No single shareholder (including its related parties) is permitted to own more than 30 per cent. of shares.
	The situation in the Netherlands is especially complex. The document says that for listed REITs, a
	Shareholder that is a Netherlands corporation must own less than 25 per cent. (directly or through related entities).
	It continues to say that a
	Shareholder that is an individual must own less than 25 per cent..
	With regard to unlisted REITs, it says:
	Shareholders that are taxable corporations (either Dutch resident or foreign) must own together less than 25 per cent.,
	that a
	Shareholder that is a Netherlands corporation must own less than 25 per cent. (directly or through related entities)
	and that a
	Shareholder that is an individual must own less than 5 per cent.
	Different rules thus apply in various jurisdictions and the area is complex. There is evidence from overseas that one could pray in aid of the amendment on close companies but, equally, evidence of more restrictive overseas requirements on the ownership of a real estate investment vehicle.
	It is important that we get some indication of where the Government intend to go with this. On ownership, I believe that the purpose of the 10 per cent. rule is to prevent double tax treaties being used to facilitate overseas investors acquiring more than 10 per cent. and thus enabling them to benefit from double tax treaty provisions that would reduce their tax liability. I would be interested to know whether the Government are considering expanding the proposal, especially for specific vehicles, such as pension funds, which I understand, as a matter of practice, do not to tend to pay tax on properties in the UK in any event. Are negotiations taking place with other countries on double tax treaties to try to expand the area so that REITs fall outside it, which might enable the 10 per cent. provision to be raised a higher level, such as 40 per cent.?
	The Government have at last progressed this matter, and we all recognise that that is a good thing. The signs are that the Government have listened to industry, particularly on the conversion charge not causing difficulties. Effectively, they have given the industry what it wanted. During this afternoon and in future we require a firm commitment from the Government that they will not abandon REITs if they find in two years' time that REITs are costing a bit of money. We do not want REITs to be struck out like a home computer initiative of its day. The industry requires a long-term commitment. I hope that the Government will be able to demonstrate that they have that commitment during the debate.

Brooks Newmark: Real estate investment trusts, when they were originally conceived as property investment funds, were intended to stimulate investment in the residential market, as my right hon. Friend the Member for North-West Hampshire (Sir George Young) said earlier. There has been some debate over whether that objective is still feasible or whether the Government think that it is still desirable. However, whatever the main focus of REITs is to be, it is clear that if they are to be successful in this country, as they have been abroad, they must be just as flexible as those elsewhere. I believe that that is a point that my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) has been making in tremendous detail. I congratulate him on his sense of detail in addressing the issue.
	The need for flexibility is taken up in amendment No. 4, which my following remarks will solely address. The decision to impose a requirement that REITs should be listed on the stock exchange has been a controversial one. The issue was discussed at length during the consultation process. The Treasury discussion paper, which was published in 2005, acknowledged that respondents had expressed widely differing opinions. Nevertheless, the Government concluded that a transparent REIT market was best founded upon a listing requirement.
	It was accepted, however, that some advantages lay in allowing unlisted companies. All these benefits relate to the original justification for introducing REITs. They include the need to increase flexibility in market access by smaller or more specialised funds, especially those in the residential sector. A comparison with the US is indicative of the problems that may be caused by imposing a listing requirement.
	There are about 190 REITs registered with the Securities and Exchange Commission in the United States that trade on one of the major stock exchanges. In addition, about 20 REITs are registered with the SEC but are not publicly traded. This is in contrast to about 800 REITs that are not registered with the SEC and are not traded on any stock exchange whatsoever. Listed REITs are therefore outnumbered 4:1 in the United States, which is a more mature and experienced market. I hope that the Government take that fact into account.
	Statistics help to explain why commentators remain critical of the Government's decision to impose a listing requirement on UK REITs. The Royal Institution of Chartered Surveyors said:
	A successful REIT market should have both listed and unlisted vehicles in order both to allow maximum choice to investors of differing experience and size, and also to provide a pooling facility for smaller REITs to develop outside a listed market until such time as they are ready and able to go publicthis should be particularly helpful for smaller players in the market.
	The royal institution has simply identified the need for REITs to be able to operate in a transitional framework that helps to nurture small funds until they are ready for the increased compliance costs of a full listing. That is exactly what my hon. Friend the Member for Rayleigh (Mr. Francois) has proposed with amendment No. 4the use of the alternative investment market as a transitional framework. The amendment is a pragmatic compromise between the benefits of increased transparency, which are brought about by imposing a listing requirement, and the benefit of lower compliance costs that come with a less regulated market. The alternative investment market was established, as we have heard, to satisfy exactly that need for compromise in the equities market. The same need exists in the real estate market. Even if we accept the listing requirement for the moment, the Government's rationale for excluding AIM is unclear.
	In only 10 years, AIM has become firmly established as the world's leading market for smaller growing companies. More than 2,000 companies have benefited from public listing, which otherwise would have been out of their reach. AIM has succeeded because it relies on a simplified and flexible regulatory approach. Those are both watchwords for the Government's intention for the new REITs structure, yet REITs will not be able to benefit from AIM.
	AIM is not unregulated, nor does it lack the transparency that the Government seekfor onceto encourage, but it does not stipulate minimum criteria for company size, track record or the number of shares required to be in public hands. By way of contrast, a company that wishes to list on the main market has to go through the long, time-consuming and expensive process of producing a prospectus, which is now regulated by the UK Listing Authority. Companies in that position must have 700,000 in equity capital and a minimum trading record of three years. However, AIM requires that all companies that wish to list and to remain list-trading have a nominated adviserknown as a NOMADto see them safely through the regulatory wilderness. The pragmatic approach allows AIM to minimise compliance costs while maximising investor protection.
	The Government's omitting AIM from this Bill is curious, to say the least. In 2003, the then Chief Secretary to the Treasury gave a series of written answers on AIM's regulatory status. In one of them, she said:
	The London Stock Exchange (LSE) is a Recognised Investment Exchange (RIE) under the Financial Services and Markets Act (FSMA) and has to operate all its markets, including the Alternative Investment Market (AIM), in compliance with the recognition requirements for RIEs . . . . AIM is also a 'regulated market' under the EU's Investment Services Directive.
	The Government seemed at the time to be satisfied with AIM from a regulatory standpoint. Indeed, the Chief Secretary was confident enough to conclude the following in her written answer:
	Because AIM is not going to become an unregulated market, the Treasury has not done any research about the impact of such a scenario on investors and issuers.[Official Report, 4 November 2003; Vol. 412, c. 62425W.]
	I want to return briefly to a point that my hon. Friend the Member for South-West Hertfordshire made so forcefully on Second Reading. He said:
	We must always bear in mind the consequences to our tax system when we evaluate our relationship with the EU.[Official Report, 24 April 2006; Vol. 445, c. 446.]
	He also said that being complimented by the Paymaster General might be hazardous to his career. I hope that complimenting the Government on a notable success will not be hazardous to mine. The success to which I refer was the defence of AIM during negotiations on the prospectus directive. Perhaps that success will prove that taking a harder line during negotiations in Europe does indeed pay dividends.
	If the concession had not been won, AIM's ability to operate would have been undermined by increased compliance costs for firms wishing to list. Baroness Cohen of Pimlico paid tribute in another place to the Government's efforts. She said that AIM has
	been actively nurtured, given a favourable tax regime and defended from rather heavy-handed regulatory proposals, which were introduced by the European Commission in the early stages of the financial services action plan.[Official Report, House of Lords, 16 March 2006; Vol. 679, c. 1422.]
	But despite this success, the fact remains that there are currently twice as many real estate companies listed on AIM that are trading in overseas property markets as those involved in the UK domestic market.
	The Bill as it stands will disadvantage the domestic real estate sector by excluding those companies and others with similar credentials from converting to REITs. My hon. Friend's amendment will ensure that the REIT structure can harness a market that is tailored to smaller and younger companies and has a streamlined regulatory regime. Instead of a REIT structure that is inclusive, flexible and entrepreneurial, we are in danger of developing one that is exclusive, inflexible and commercial. Instead of greater autonomy for small firms, we are set to create yet another oligopoly of institutional investors.

Ivan Lewis: Having spent the past nine hours supporting my right hon. Friends the Paymaster General and the Financial Secretary, it is a great relief to have the opportunity to speak in the debate. I hope that the hon. Member for Rayleigh (Mr. Francois) will sit opposite me in Committee during the next few weeks. After the local election results, it might well be the Leader of the Opposition who will be carrying out a fundamental reshuffle of the Opposition Front-Bench team.
	I shall respond to the issues and challenges set out by Opposition Members in the debate. The amendments and the contributions have been constructive. There is a significant consensus about the importance of getting on with a UK real estate investment trust. I shall do my best to address in detail some of the questions that have been raised.
	The hon. Member for Rayleigh asked when the regulations would be ready. I can assure him that it is our intention to have draft regulations ready by the time the clauses are debated in Committee. I will do my best to ensure that that happens.

Mark Francois: I thank the Minister for giving way so early in his remarks, and I notice his bullish opening. I appreciate the commitment that the regulations will be available before we reach the relevant clauses in Committee, but that could mean, theoretically, that they are published the night before. We would like to see them earlier, so that we have time to digest and, ideally, consult on them with interested parties before we start debating the clauses. I am sure that he will understand the reasons for that. It is a reasonable request. I wonder whether he can do a little better, under the circumstances.

Ivan Lewis: My undertaking could, theoretically, mean the night before, but I will do my best to ensure that the hon. Gentleman and other members of the Committee have sight of the regulations much earlier than that.
	The hon. Member for Falmouth and Camborne (Julia Goldsworthy) asked me for a longer-term projection on receipts. That is not standard practice. In the present circumstances, three years is a reasonable period, but as the market develops during those three years, I am sure we will be able to consider a longer period.
	As he did on Second Reading, the right hon. Member for North-West Hampshire (Sir George Young) raised a couple of important issues, with which I shall try to deal. He was keen to know our assessment of how much of the emerging market would entail the conversion of existing companies, and how much of it would involve new investmentnewcomers to the marketplace. At this stage, the introduction of a UK REIT is intended to improve the situation for existing companies, but as a consequence of doing that we expect new companies to emerge in the marketplace. We believe that there will be a dual effect. The measure will initially assist companies already in the marketplace, and it will encourage newcomers to the market.
	The right hon. Gentleman also asked about the change of emphasis to commercial property. He will remember the housing investment trusts that were introduced in 1996 by the previous Conservative Government, which were specifically focused on low cost residential property. Sadly, no housing investment trusts were created as a consequence of that legislation, but UK REITs have always involved both commercial and residential property. Of course, the commercial property market is an important part of the economy, so it is vital that that market is working efficiently. I would not necessarily accept that there is undue emphasis on commercial property, but it is a very important part of this new development.
	I shall come to the other points made by the right hon. Member for North-West Hampshire in a few moments.
	The hon. Member for South-West Hertfordshire (Mr. Gauke) took us on a tour of the international community, of which I am sure we were all appreciative, in looking at the models that exist in different countries. I should like to make two points. It is important that hon. Members adopt a model that we believe is appropriate to the current UK market. Howeverthis also responds to a point made by the hon. Member for Rayleighit is also important that we keep that market under review, as it develops.
	We are willing to consider any consequence of market developments and what we are learning about what happens in the international community. We must always be willing to consider whether we want to change the regime in the interests of the market and clearly not to the disadvantage of the Exchequer. Of course, we can give a commitment today, in the context of the concerns that have been made or suggestions to do things slightly differently, that we will keep the situation under review. If necessary in the future, we would be willing to consider in a flexible way whether changes need to be made.
	The right hon. Member for North-West Hampshire was keen that I try in my response to look beyond simply the amendments and put the UK REIT regime into a bigger picture or wider context. If you will permit me, Sir Michael, I intend to do that, as I develop my arguments. Of course, I will then deal specifically with the amendments and explain why we do not feel able to accept them at this stage, although we will reflect on the reasons why they have been proposed, quite responsibly, by the Her Majesty's Opposition.
	I should like to remind the Committee of the rationale for UK regime, of which clause 106 is, of course, an important element. REITs exist in a number of other countries with well-developed property investment markets and provide a specific tax regime for investing in property. We believe that the time has clearly come for the UK property market to have access to such reforms. Investment in property can be undertaken both directly and indirectly, such as through a company or unit trust, but the way in which property companies are currently taxed has led to inefficiencies in the way that markets operate.
	Property companies are taxed at corporate level on their rental income in the same way as all other companies. However, as a consequence, for many types of investorfor example, pension funds, and I will deal with the comment about pension fundsthe overall tax effect of investing indirectly through a property company is higher than if they had bought the property directly. That tax distortion has led to significant inefficiencies in the market, as tax has often been a primary driver of investment decisions, and the Government are seeking to remove that distortion with the introduction of this legislation.
	I want to talk a little about the market inefficiencies that we believe require addressing. First, there are high barriers to entry to investment in the property market, particularly in commercial property, where few retail investors have access to that asset class, given the scale and cost of the underlying property assets. The introduction of UK REITs will therefore help to improve access for all investors by allowing smaller, more liquid investments.
	Secondly, as I mentioned earlier, there are a number of ways for investors to access returns from property: direct ownership, onshore and offshore unit trusts, limited partnerships and companies. Given the differing tax regimes that apply to those vehicles, investing in property through a listed UK company is relatively unattractive. As a result, the commercial property investment market is now characterised by poor levels of liquidity, with pricing and investment decisions largely determined by individual transactions among a relatively small number of players. REITs will offer the opportunity for a more liquid market, with improved transparency and scrutiny, by removing the tax disadvantage that listed property companies currently face.
	Thirdly, UK property companies have tended to have a market value lower than the value of their net property assets, a feature caused in part by the tax system. That has led to a strong reliance on debt financing as equity investors are less attracted to listed property companies. The UK REIT regime will reduce the impact of tax as a significant factor in the choice between debt and equity in raising capital.
	Fourthly, a high proportion of commercial property in the UK is owner-occupied, and there is some evidence that this property tends to be used less intensively than property in the investment market. The introduction of UK REITs offers the opportunity for greater economies of scale, as a new tax-efficient vehicle will be available through which property can be released into the investment market.
	Finally, as highlighted by the Barker review of UK housing supply, UK REITs offer the opportunity to provide greater institutional and professional investor involvement in the private rented sector as an alternative to the direct buy-to-let market. That will help to address the variable standards of management and quality of housing stock, particularly at the bottom end of the private rented sector, as well as providing developers with a more efficient and liquid investment market into which newly developed private rented accommodation can be sold.
	Furthermore, while we are on the subject of housing, the introduction of the UK REIT regime supersedes the housing investment trust or HITs regime, introduced in the Finance Act 1996. It has been confirmed through consultation with industry that the provisions of the HITs regime were never utilised. The Government therefore propose to repeal the relevant parts of the Taxes Act.
	In summary, the proposed UK REIT regime will help to address the various problems that I have just described, and we believe will lead to a more efficient property investment market in the UK. At the same time, the Government have always stated that one of our objectives is to retain fairness for all taxpayers by ensuring that UK REITs are introduced at no overall cost to the Exchequer. For that reason, companies joining the UK REIT regime will be required to pay an entry charge, details of which are set out in clause 112.

Quentin Davies: Are there any proposed restrictions on the degree to which these REITs can be leveraged? I am not suggesting that there should be, but it should be clear whether leverage will be possible.

Ivan Lewis: I will come to that in a moment. There are some restrictions. If the hon. Gentleman had been here a little longer he would have realised that a significant part of the debate that we have had has been about those restrictions on leverage.
	To give some background, the Government began consulting on the possibility of introducing a UK REIT regime in 2004. Draft legislation was released in December 2005, and since then the Government have consulted extensively on the proposed regime with representatives of the property and investment industries. Of course there is always a fine balance between wanting to get such a measure on the statute book and get on with it, and ensuring that we get the regime right. If we spend time consulting properly and as a consequence design a more satisfactory regime, it is far more likely that it will be viable in the long term. Had we rushed the process, we might have ended up with an inappropriate regime, which would have undermined the whole concept of a UK REIT. Therefore, I defend the time that the process has taken. The consultation that has taken place during the past few months has been incredibly productive and constructive, and I suspect that that is why we have a significant degree of consensus, not only in the House but in the market, on the model that the Government propose to take forward.
	The proposed regime will be available to companies if they meet certain conditions. A company must be resident in the UK, its shares must be listed on a recognised stock exchange and it must not be close. Those requirements are set out in clause 106. These companies will be exempt from corporation tax on property rental income, provided that they distribute 90 per cent. of such profits to investors, who will then be taxed at their marginal rates. That will achieve the fundamental aim of the regimeto mirror the tax treatment of direct property investment. To provide flexibility for companies to operate, the regime will be available to groups of companies, subject to certain conditions, including that the principal company in the group is UK resident, listed and distributes 90 per cent. of its property rental profits as just described.
	To ensure that UK REITs remain focused on their core property investment activity, at least 75 per cent. of the company's business, by both assets and profits, must consist of property rental business. The remaining 25 per cent. may be in any kind of activity, but will be subject to corporation tax in the usual way.
	To avoid tax leakage, the regime sets limits on borrowing and the proportion of the company owned by any one shareholder. The nature and enforcement of these limits have been the subject of detailed discussions with the industry and others, which has produced a set of rules that can be enforced flexibly, with remedies proportionate to the level and nature of the breach. In practice, breaches of most of the conditions of the regime will simply result in a tax charge to compensate for lost revenue, with expulsion from the regime being reserved for certain key conditions or cases where clear abusive activity has taken place.
	Companies will be able to participate in the regime from 1 January 2007, subject to meeting all the necessary conditions and paying an entry charge equal to 2 per cent. of the value of their property assets.
	I should like to deal now, Sir Michael, with the Opposition amendments proposed by the hon. Member for Rayleigh[Interruption.] I am sorry, Mrs. Heal, I nearly said something that I might regret. I shall deal first with amendment No. 4 and I shall attempt to respond to the issues raised mainly by the hon. Member for Braintree (Mr. Newmark). As to his concerns about the future of hon. Members' careers after praising the Government, that is a matter for others and not for me to speculate on.
	Amendment No. 4 deals with the condition requiring listing on a recognised stock exchange. As has been said, that condition excludes shares traded on an alternative investment market and the amendment proposes that the Government extend the UK REIT regime to companies traded on AIM. I would like to respond to the points raised by hon. Members and explain why we believe, at this stage, that the amendment presents too many difficulties.
	First, it is obviously a new regime and in the Government's opinion, the first companies in that regime should be listed only on exchanges that are regulated, which gives some assurances to investors, particularly small investors, that their investments come with fulland full is the important wordregulatory protection. Only regulated markets are admitted to the list of recognised stock exchanges maintained by Her Majesty's Revenue and Customs.
	Secondly, the term recognised stock exchange is a fundamental concept used in our tax legislation. For example, only those shares listed on an RSE can qualify for inclusion in an ISA and the RSE definition is also important in areas such as stamp duty, venture capital trusts and the enterprise investment scheme.
	Thirdly, and cruciallyto deal with a point that hon. Members did not raiseit would not be possible to allow companies with shares listed on AIM to be eligible for the regime without also extending the same position to companies listed on similar markets in the European Union. The behavioural effects of such an extension are difficult to quantify in terms of the long-term cost to the Exchequer. Again, the risk for small investors would be greater than if the regime were restricted to companies listed on an RSE.
	To conclude my response to amendment No. 4, an extension of the regime to include companies traded on AIM would not meet the Government's objectives at this stage. On that basis, having explained the Government's position, I hope that the hon. Member for Rayleigh will consider withdrawing the amendment.
	Amendment No. 23 also deals with a condition of the regime. Its effect would be to allow a UK REIT to be a close company. Being close is often used as a tax test to identify a company that is controlled by five or fewer people. Removing the restriction would allow companies controlled by a smaller number of investors to become a UK REIT. Hon. Members have made a case for us to consider doing so. As I have said, to achieve our policy aims for the regime, we would want the UK REIT to be capable of wide ownership by investors. That is not only to achieve a political objective, but for the sound reason of preventing tax avoidance. The closed company test is used throughout tax legislation for precisely that reason, and we believe that it has stood the test of time, which is why we have introduced it into the Bill.
	The amendment would strike out that condition, the absence of which would allow any one person to control a UK REIT and divert many of the benefits of tax exemption conferred by the regime. In particular, a large group of companies could set up its own private UK REIT and obtain entirely unintended tax benefits in relation to the group's property holdings. That would be a clear subversion of the intention of the legislation, which is that the tax benefits of the regime should be available only when that kind of owner-occupied property is released into the investment market. The listing requirement, while undertaking a useful function in encouraging wider ownership, would not be sufficient on its own to prevent that kind of abuse. Companies may argue that they do not always know when they are closed, but the test is commonly understood and should not trouble a truly widely held vehicle. Indeed, that condition attracted little adverse comment in any of the public consultations in recent months.
	The hon. Member for Rayleigh expressed the concern that a company may not know when it has reached that particular stage, but we believe that a company would know in most cases. An exclusion is available in the most common circumstances, which are when difficulties may be created by the involvement of a venture capital firm. One would expect companies to go to reasonable lengths to ensure that they do not breach that requirement and to use all the tools at their disposal in order to do so. For example, a UK-listed company can issue notices inquiring into the ownership of its shares.
	The hon. Member for Rayleigh has also raised the question of pension funds, which I want to address directly in order to explain why there is not a problem. The extension in section 415 of the Income and Corporation Taxes Act 1988 allows 35 per cent. of shares to be held by the public. The definition of the public includes a pension fund, which effectively removes that problem. I assure the hon. Gentleman that his concern is not valid, but I shall write to him with a more detailed explanation before Committee.
	Amendment No. 24 seeks to require an annual report to Parliament on the number of market capitalisations of companies in the UK REIT regime. The FTSE real estate index currently includes 35 companies, which have acombined market capitalisation of approximately 28 billion. At a recent industry conference, it was stated that most of those companies will choose to enter the UK REIT regime in January next year or at some point after that, depending on their particular circumstances. In addition, the expectation was that some currently unlisted companies would choose to list in order to join the regime and that some companies would be formed from scratch for the purpose of joining.
	There would be very little value in having a specific Government report on an issue which will be widely known, which will be in the public domain and on which we will have the opportunity to report, perhaps in the pre-Budget report or the Budget. However, we cannot see why the Chancellor needs to produce a specific annual report. As I have said, however, we will keep the emerging market under review, and if developments occur that require us to adjust that regime to make it more effective and efficient and to ensure that we can pursue our objectives, then we will be open to reviewing it from time and time and making the appropriate changes.
	Having accepted that there is significant consensus in the House today on the UK REIT regime and having tried to respond in depth to the genuine concerns expressed by the hon. Member for Rayleigh, I hope that he will withdraw the amendment.

Quentin Davies: rose

Sylvia Heal: Order. I believe that the Minister has completed his speech, so the hon. Gentleman cannot intervene on him.

Mark Francois: I am sorry that my hon. Friend was slow off the mark, but I am speaking now, and I am happy to accept an intervention from him. I shall do my best as a stand-in and try to answer his questions.

Quentin Davies: I am grateful to my hon. Friend for his kind suggestion, but I am not sure that he is in a position to help me, because I wanted to remind the Minister that he promised to deal with my question about regulations that could limit REITs' capacity for leverage. He did not manage to address that point, contrary to the undertaking that I believe he gave me.

Mark Francois: If it assists my hon. Friend, I am happy to act as an intermediary. I understand that there is a condition on a gearing ratio of 1.25:1. That is the basic answer to his question, but if the Minister has anything to add he is welcome to intervene on me.
	This has been a useful start to our discussion on the concept of REITs, which are a principal component of the Bill. Most contributions to the debate were well informed, but I am afraid that I must make an exception for the hon. Member for Falmouth and Camborne (Julia Goldsworthy), as she took a side-swipe at the alternative investment market. [Interruption.] Well, she was a little undermined by the intervention of her hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso), who pointed out that he had been an investor in that market, although he was honest enough to say that he had not enjoyed tremendous success. On the degree of risk in AIM, it is important to stress that in many cases it is investment managers' responsibility to decide where to invest institutional money. They are paid a great deal to make risk decisions, and they are well placed to try to decide whether it is best to invest in an AIM company. Companies are allowed to list on AIM, but people are not forced or compelled to invest in them. If companies are strong and credible, people have the option of investing in them, whether they are institutional investors or individuals. If they are not strong and credible, they will not do so. That is a perfectly reasonable response to the point made by the hon. Member for Caithness, Sutherland and Easter Ross.

Julia Goldsworthy: May I point out to the hon. Gentleman that I was stressing the importance of risk? REITs are about to be set up, but the matter should be revisited once they are more firmly based. That does not constitute a side-swipe at AIM.

Mark Francois: People who monitor our proceedings can read Hansard and judge the matter for themselves. However, I did not think that it was a pro-capitalist point from the Liberal Democrats.
	Some of the questions that I asked were ably amplified by my right hon. and hon. Friends. However, I am not sure whether the Minister fully addressed the important point made by my right hon. Friend the Member for North-West Hampshire (Sir George Young), who has a background in housing. On Second Reading he stressed the question of whether REITs would benefit the residential property market. Most of the discussion about REITs has been about the way in which they affect the commercial property market, and most people approach them from that perspective. However, REITs provide an important opportunity to boost residential property in this country, not least as some people find it difficult to afford a house, and therefore want to rent. I commend my right hon. Friend for raising that issue, and give the Minister notice that we shall want to explore it in more detail in Committee.

Quentin Davies: Does my hon. Friend agree that it may not be entirely sensible to have a restriction of 1.25:1 on the maximum leverage that a REIT can undertake? There is nothing to stop a REIT from investing in a project or a building which itself carries a much greater degree of leverage. Investors will not be protected by this restriction. On the other hand, it prevents somebody from setting up a REIT with the specific objective of offering a highly leveraged play in the real estate market. Some people might like a higher-risk instrument at certain stages of the property cycle, so why should the Government officiously cut off that opportunity? Does my hon. Friend agree that this matter has not been as thoroughly thought through as it might be?

Mark Francois: I thank my hon. Friend for raising that important point. I have not delved into the gearing ratio, because it was not one of the conditions in clause 106 on which I decided to concentrate today. My hon. Friend has put down a marker from his own perspective, and I am sure that the Minister and I will want to debate the matter in detail when we get to the appropriate clause in Committee.

David Gauke: At an earlier stage the Government proposed a leverage limit of 2.5:1; now, it is 1.25:1. In February the Royal Institute of Chartered Surveyors argued that that restriction was unnecessary because the market will restrain excessive borrowing and ensure a reasonable level of taxable deductions. That tends to be the international norm. In many jurisdictions there is no leverage limit.

Mark Francois: I thank my hon. Friend for reiterating that point. I will not respond in more detail for fear of straying beyond the bounds of order. Nevertheless, I commend my hon. Friends the Member for South-West Hertfordshire (Mr. Gauke) and for Grantham and Stamford (Mr. Davies) for their ingenuity. Suffice it to say that we shall want to explore the issue in more detail when we move upstairs.
	I thank my hon. Friend the Member for South-West Hertfordshire for his assiduous research on how REITs work in other jurisdictions around the world. He saidthis is important in relation to AIMthat one day the United Kingdom might become the REIT capital of Europe. Were that to happen, I am sure that we would all welcome it. However, it will require a regime that is flexible and encourages investment. I want to make a couple of points about that. There are already several offshore property vehicles, which have mushroomed in the past few years while everyone was waiting for REITs, but they did not turn up. Jersey has been mentioned in that context.
	One of the tests of the REITs regime will be whether it succeeds in bringing that money, or at least a fair proportion of it, back onshore. The Government need to take that on board. Sophisticated institutional investors will carry out a cost-benefit analysis of the advantages or otherwise of different jurisdictions. They will look very carefully at the UK REITs regime, and I am sure that the ability to have several REITs companies invested on a fairly broad basis will have an impact on their decisions on whether to bring their money back onshore.

David Gauke: My hon. Friend makes a good point. There are two tests here. Let me take the example of Jersey. First, will Jersey continue to expand or, as one would assume, slow down? Secondly, will the sums that have already been invested in Jersey come back onshore, and do we need a specific regime to encourage that? I hope that we will have an opportunity to explore that in Committee.

Mark Francois: My hon. Friend has put down a marker, and I look forward to his amendment. He also referred to an important aspect of tax competition, which is important in the context of AIM. There is sometax competition between REITs in different jurisdictions. For example, the Singapore Government have recently decided to levy no tax on the dividends from REITs because they are trying to compete directly with REITs in Hong Kong. The Economic Secretary must examine that when considering the sort of regime that he wants to construct, because our regime in the United Kingdom will have to compete with, for example, that in France, and shortly that in Germany. He must bear all that in mind when he keeps those matters under review.
	I welcome the Economic Secretary's general pronouncement that the Government are willing to keep the regime's operation under review. The industry, and investors too, will welcome that. If I heard him correctly, he said that the Government would be willing to look at how flexible changes could be made in the future. That does not completely commit him, but it shows that he is open-minded and we welcome the statement in principle.
	I also welcome the Economic Secretary's commitment not to publish the regulations as late as the night before we reach them in Standing Committee. The earlier, the better. The Government have had several years to prepare for the regime and, by definition, for the regulations. It would therefore be nice if we could have them fairly promptly. We cannot accuse the Government of not having had time to plan. The Economic Secretary said, in a positive spirit, As soon as possible, and I reply, in the same spirit, thank youand the sooner, the better.
	Our purpose in tabling the probing amendment on the annual report was to try to get from the Government some commitment that they would report to Parliament progress on the REITs concept. There does not have to be an annual report, but we tabled amendment No. 24 so that we could discuss the idea. The Economic Secretary responded by saying that it might be possible to include an update in the pre-Budget reportpresumably, that would apply to the report for 2007. I welcome the suggestion. I do not think that he promised to do that, but it might be useful for the pre-Budget report of 2007 to include an update, so that we can ascertain how the concept is panning out. On that basis, I shall not press amendment No. 24.
	I am grateful to the Economic Secretary for clarifying the technical point that I raised when considering amendment No. 23 on close companies. I am sure that the industry and the pensions industry will welcome that. I also thank him for his courtesy in offering to write to me specifically on the matter. I am sure that a clearly set out letter from him will solve the matter beyond peradventure. I look forward to receiving that correspondence so that the issue can be quietly put to rest. It would therefore be churlish of me to press amendment No. 23.
	I must chide the Economic Secretary slightly in the context of amendment No. 4, because he said that AIM was not regulated. To be fair, I believe that he corrected himself. AIM is regulated, but more lightly than a full listing on the stock exchange. Most investments involve some risk. There is, arguably, a slightly higher risk in investing on AIM than in investing on the full London stock exchange, but it is not that different. It should be possible for people to decide for themselves whether they want to invest in a company on AIM or one that is listed on the London stock exchange, through examining the company's record, that of the directors, past performance and so on.
	By not spreading the capability so that companies on AIM can achieve REIT status, the Economy Secretary denies potential investors such a choice. He also denies companies on AIM the choice to apply for REIT status if they wish. He could be compelling them to apply for full listing on the London stock exchange when they are not ready for it. They may feel that they have no option but to go for London stock exchange listing to get the tax advantages of REITs, and that they would be vulnerable to takeover by a REIT listed company if they did not do that.
	If the Government do not give way on that issue, there is a genuine problem concerning the effect on the orderly running of the market. To those who said that we were going too far, I stress the fact that we received representations to press the argument to extend the provision to unlisted companies. We have not gone that far. We made AIM our sticking point today, and we have asked the Government to respond to that.
	However, the Economic Secretary replied responsibly and gave a commitment to keep those matters under review. We shall need to see how the regime is working as it rolls out in 2007, and if it seems to need a further boost by extending the REITs concept to the AIM, I hope that the Government will be prepared to view the matter seriously and to allow the concept to be spread to a wider range of companies, precisely along the lines that my hon. Friend the Member for Braintree (Mr.   Newmark) described. That has worked very successfully in the United States, and his point that unlisted REITs outnumber listed REITs in the US by a ratio of 4:1 was extremely pertinent.
	The Minister has offered to keep the matter under review, and I thank him for what he has said this afternoon. We have had a very positive start to our discussion on REITs, and we look forward to more such discussions upstairs in Committee. On that basis, I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.
	Clause 106 ordered to stand part of the Bill.

Clause 13
	  
	Rates

Julia Goldsworthy: I beg to move amendment No. 25, in clause 13, page 14, line 20 [Vol I], leave out Table A and insert
	
		
			  
			 CO2  Emissions figure Rate 
			(1) (2) (3)   (4)   (5) 
			 Exceeding   Not   Exceeding   Reduced Rate Standard Rate Premium Rate 
			Householdswith apostcode ina sparselypopulatedrural area  Householdswith apostcode ina sparselypopulatedrural area  Householdswith apostcode ina sparselypopulatedrural area 
			   g/km   g/km 
			10012030 1540 2050 25 
			12015090 45 100 50 110 55 
			150165 115 57.50 125 62.50 135 67.50 
			165185 140 70 150 75 160 80 
			185  180 90 190 95 195 97.50

The First Deputy Chairman: With this it will be convenient to discuss the following amendments: No. 21, in clause 13, page 15, line 2 [Vol I], leave out Table B and insert
	
		
			  
			 CO2  Emissions figure Rate 
			(1) (2) (3)   (4)   (5) 
			 Exceeding   Not   Exceeding   Reduced Rate Standard Rate Premium Rate 
			Householdswith apostcode ina sparselypopulatedrural area  Householdswith apostcode ina sparselypopulatedrural area  Householdswith apostcode ina sparselypopulatedrural area 
			   g/km   g/km 
			10012030 1540 2050 25 
			12015090 45 100 50 110 55 
			150165 115 57.50 125 62.50 135 67.50 
			165185 140 70 150 75 160 80 
			185225 180 90 190 95 195 97.50 
			225 200  200 210  210 215  215 
		
	
	No. 22, in clause 13, page 15, line 12 [Vol I], at end insert
	'(3A) after paragraph 1B insert
	1BB For the purposes of paragraph 1B above, 'households with a postcode in a rural area' shall be defined in regulations; and before making such regulations the Chancellor of the Exchequer shall consult the Countryside Agency..'.

Julia Goldsworthy: The proposed changes illustrate the recognition of the fact that people in rural areas are likely to have higher transport costs and less access to public transport than people in urban areas, and should therefore receive a discount on the vehicle excise duty that they pay. The discount proposed in our amendments is 50 per cent. Of course, the changes should be accompanied by wider changes to ensure that the polluter pays, and to extend some of the changes proposed by the Chancellor, but I appreciate that it will not be possible to do that today, even though amendments on that issue have been tabled.
	I shall focus on the impact that the amendments would have. People who live in sparsely populated rural areas often have poor access to public transport. The 2003 national travel survey for England showed that half the residents in rural settlements of fewer than 3,000 people lived within a 30-minute walk of a bus stop. That compares with 95 per cent. of the people living in larger urban areas.
	Those rural residents are likely to spend more per week on transport than their urban counterparts. The expenditure and food survey for 200203 showed that households in rural areas with a population of fewer than 3,000 spent 70.60 a week on transport, compared with 45.50 for those living in urban areas. Half of their expenditure goes on operating costs, a large proportion of which is the cost of fuel. That is because they have to travel to work and they do not have the option to use public transport. Also, they often have to drive their children to school. The operating costs in rural areas are often much higher. For example, fuel in the highlands is 10 per cent. more expensive than elsewhere.
	People in rural areas make a similar number of trips to those made in urban areas, but those trips are longer and more likely to be made by car. Many of those people are also likely to live in isolated and deprived areas.

Paul Goodman: Will the hon. Lady tell the House what definition of sparsely populated rural area she proposes to insert into the Bill?

Julia Goldsworthy: Of course I will come to that. Our proposals deal with sparsely populated rural areas as defined by the Countryside Agencyalthough they apply only to England and Wales. However, I hope that we shall be able to consider those criteria in relation to Scotland or, if necessary, table an amendment that would allow such a decision to be devolved to the Scottish Parliament.
	My constituency is in the county of Cornwall. Cornwall's gross domestic product is less than 70 per cent. of the European average. Many people there live in isolated areas with very little access to public transport, and are therefore reliant on their cars. Many households in rural areas are isolated and deprived, dependent on a car and more likely to own an older car. I am not simply talking about farmers who rely on their 4x4 vehicles, but about people who are totally dependent on a car to get around.

Dawn Primarolo: I want to press the hon. Lady on the point made by the hon. Member for Wycombe (Mr. Goodman). In the south-west region, which she and I both represent as Members of Parliament, what percentage of the population officially live in a rural area as opposed to a town or city?

Julia Goldsworthy: The definitions in the amendment mean that it would affect hundreds of thousands of people who do not live in settlements of 10,000.
	If the Government are to take seriously what the Chancellor has called the moral duty to tackle environmental change and make the polluter payin the direction of which the Finance Bill and Budget made the smallest possible gestureit must be recognised that deprived and car-dependent households in sparsely populated and rural areas will be hit hardest by further changes to vehicle excise duty if the polluter pays principle is applied.

Danny Alexander: I strongly support what my hon. Friend says on this point. In my constituency in the highlands of Scotland, the vast majority of people live in rural communities, a car is essential, few public transport alternatives exist and the price of petrol is much higher than in many other parts of the country. The amendment would enable pollution to be tackled through higher vehicle excise duty, while ensuring at the same time that those for whom a car is a necessity rather than a choice could be insulated from those costs.

Julia Goldsworthy: My hon. Friend makes his point well. Those people will be hit hardest by changes to vehicle excise duty if the Government are serious about following through their commitment to the polluter pays principle. However, they are also the people on whose behaviour the changes will have the smallest impact, as they have no alternatives to car use. Under the amendment, the attempt to alter behaviour through changes in vehicle excise duty can continue without crippling those people.

Paul Goodman: As the hon. Lady apparently has a definition of people in rural and sparsely populated rural areas, can she tell the House how many people would benefit from her amendment?

Julia Goldsworthy: I certainly can. According to the rural and urban area classification 2004 and census data, we are talking about 398,249 households.

Stewart Hosie: I am fascinated. Notwithstanding the fact that the Countryside Agency covers only England, not England and Wales, Scotland has two definitions of ruralone is the Scottish Executive's, under which 98 per cent. of the land mass and 18.7 per cent. of the people are covered, and the other is the Randall definition relating to sparsity, under which 89 per cent. of the land mass and almost 30 per cent. of the population are covered. Is the hon. Lady really trying to achieve an opt-out for 30 per cent. of the population?

Julia Goldsworthy: I am talking about households living in sparsely populated rural areas. As I have made clear, we wanted to set out a sparsity criterion in the amendment that could be applied across the UK. The criterion to which we worked was that provided by the Countryside Agency. We would be more than happy to accept an amendment to devolve that

The First Deputy Chairman: Order. I know that the hon. Lady is relatively new to the House, but it is important to address the Chair.

Julia Goldsworthy: I apologise, Mrs. Heal. If the hon. Gentleman wants to table an amendment devolving that responsibility to Scotland, I would be more than happy to accept it later.

George Young: I am not unsympathetic to the hon. Lady's point, but the tax that she proposes to amend is not on households but on cars. Can she confirm that any car registered in a postcode covered by her amendment would qualify for the reduced rate?

Julia Goldsworthy: I can confirm that. Cars must be registered to households, not just for vehicle excise duty purposes but for insurance purposeswere there any abuse, the insurance would not be valid.

Rob Marris: Following the point that has just been made, the form concernedwhatever it is called nowwould give the address of the car's registered keeper, not necessarily that of its owner. The owner is entitled to insure the car, so an urban owner whose distant aunt living in the middle of nowhere is the registered keeper could get around the VED regime proposed by the hon. Lady. How would she avoid that?

Julia Goldsworthy: Quite simply: by ensuring that when someone paid vehicle excise duty, that person declared that he or she was also the main driver of the car.
	Amendment No. 25 would provide a 50 per cent discount for cars registered before 23 March 2006 in households with a postcode that defined them as being in a sparsely populated rural area. Amendment No. 21 would sustain that discount for all cars registered after 23 March, except those that are most polluting. I think it desirable to retain the incentive for people to seek less polluting vehicles when purchasing new vehicles. However, I favour a much greater differential, as recommended by the Energy Saving Trust.
	Even for those requiring a new 4x4 for work, there are less polluting alternatives. The Land Rover Freelander 4x4 Td4 Adventurer estate produces carbon dioxide emissions of 205 g per km, and the Subaru Forester 4x4 produces emissions of 220 g per km. Amendment No. 22 suggests that sparsely populated rural areas should be defined in terms that the Countryside Agency has already explored. The Agency may be able to establish criteria that could be applied to the United Kingdom more widely. Alternatively, as I have said before, I should be happy to accept on Report an amendment devolving this definition to Scotland.

Paul Goodman: Does the 398,000 figure relate to people living in rural areas, or to people living in sparsely populated rural areas?

Julia Goldsworthy: It relates to sparsely populated rural areas as defined by the 2004 census.
	Our amendments recognise that people who live in sparsely populated rural areas rely on cars, and that those people will be hardest hit by any change in vehicle excise duty because they are least able to change their behaviour. They would allow the Government to proceed even further with the polluter pays principle, which they failed spectacularly to do in the Budget, without having an unfair impact on those vulnerable groups.

Paul Goodman: It is a pleasure to see you in the Chair, Mrs. Heal. It is also a pleasureafter listening to some of the Second Reading speeches and some of the speeches that have been made todayto take part in this Finance Bill debate for the first time.
	I am sorry that I cannot respond directly to the Economic Secretary, who, in a bold, combative and assertive statement, said that the Conservative party might need a reshuffle after the local elections. I was going to tell him that there might just be a reshuffle in the Labour party. I note the shock on the Labour Benches at the very prospect of that being raised, but I was going to tell the Economic Secretary that whatever might happen in that event, I hoped that he and the Financial Secretarywho is herewould be present in the Standing Committee, because I look forward to the usual exchanges.
	I shall return to the Government's proposals when we debate clause stand part. The key to the amendments can be found in tables A and B in clause 13. Table A sets out VED increases for vehicles registered before 23 Marchthe Liberal Democrats seek to amend that tableand table B sets out the increases for vehicles registered after 23 March.
	The amendments tabled by the hon. Members for Falmouth and Camborne (Julia Goldsworthy) and for South-East Cornwall (Mr. Breed) should be put in context. Last Thursday, the leader of the Liberal Democrats, the right hon. and learned Member for North-East Fife (Sir Menzies Campbell), suddenly rushed out what he described as a challenge to my right hon. Friend the Member for Witney (Mr. Cameron) to form what he described as a cross-party consensus on the environment.
	The timing of the challenge was a little curious, as I understand that my hon. and right hon. Friends were already holding discussions with the hon. Member for Eastleigh (Chris Huhne), who I see is in his place, about forming exactly that cross-party consensus. We were therefore a bit surprised to receive the challenge, whose content was also curious: the right hon. and learned Member for North-East Fife urged my right hon. Friend the Member for Witney to sign up to replacing the climate change levy with a carbon taxsomething to which my right hon. Friend had already signed up several days earlier.

Christopher Huhne: Will the hon. Gentleman clarify whether the Conservative party's carbon tax proposals extend its application across the board, including to households?

Paul Goodman: I look forward to doing that in Committee, but I am afraid that I would be ruled out of order today. We are debating vehicle excise duty, to which I turn now.
	In respect of VED, the right hon. and learned Member for North-East Fife said:
	There should be a substantial increase in the top rate of Vehicle Excise Duty.
	That is nice and plain, and the hon. Member for Eastleigh helpfully chipped in on Sunday, in a report in the News of the World. It is encouraging to see someone getting into that newspaper for sound and substantial policy reasons. The report stated:
	The Lib Dems want to hit gas-guzzling motorists with a whopping 2,000 car tax to help the environment.
	It added:
	They've tabled an amendment to a government bill that would see the top rate of car tax rise from 215 to 2,000.
	The report quoted the hon. Member for Eastleigh as saying:
	If people choose to buy the most polluting cars they must recognise the environmental cost.
	On the same day that their leader made his VED announcementand at about the same time that I assume that the hon. Member for Eastleigh was talking to the News of the Worldthe hon. Members for Falmouth and Camborne and for South-East Cornwall tabled amendment No. 25, which we are now considering. Why? The amendment would not impose a whopping great increase in the top rate of VED, but rather a whopping great decrease of some 50 per cent. in some areas.

Christopher Huhne: The hon. Gentleman may not be overly familiar with Finance Bill procedures, but if he were, he would know that only a Minister of the Crown is entitled to have selected for debate an amendment that would raise revenue. Last year, my party tabled an amendment in respect of self-invested personal pensionsSIPPs. It could not be debated, but it was nevertheless the only Opposition amendment to be accepted completely by the Government. Before the hon. Gentleman gets too disparaging, I suggest to him that we might achieve the same success with our proposal to raise the higher rate of VED to 2,000.

Paul Goodman: I shall have a good deal to say about that amendment in a moment, but I thought that Liberal Democrat Members were the ones unfamiliar with Finance Bill procedure. I do not see the point of tabling an amendment that cannot be voted on, nor of tabling an amendment that directly contradicts another one.

Julia Goldsworthy: My hon. Friend the Member for Eastleigh (Chris Huhne) referred to the SIPPs amendment that we tabled to last year's Finance Bill. It had more impact than the sum total of all the amendments tabled by the Conservatives then.

Paul Goodman: The hon. Lady claims that an amendment that could not be voted on made a substantial contribution to last year's Bill, but

David Taylor: On a point of order, Mrs. Heal. Can you advise us whether this metaphysical discussion of the Liberal Democrat party's strategyor absence thereofis advancing the debate on the amendments before the Committee?

The First Deputy Chairman: I should be much happier if hon. Members participating in the debate returned to the specifics of the amendments before the House.

Paul Goodman: I shall return to the specifics of the amendments, (Mrs. Heal) even if I disappoint some Labour Members by doing so.
	We have been told why the Liberal Democrats tabled the amendments that we can discuss fully and vote on: households in sparsely populated rural areas have special transport and social needs. People in rural areas who farm or work on the land, it is argued, often need larger vehicles that emit more carbon. That is true, and during the coming days and weeks we look forward to hearing Liberal Democrat Members, who represent urban areas and who have, like the hon. Member for Eastleigh, I am sure, been fully signed up to amendment No. 25 by the hon. Member for Falmouth and Camborne and her colleague, the hon. Member for South-East Cornwall, explain to their urban constituents why they should pay higher VED on the most polluting vehicles registered before 23 March 2006 while people in rural areas pay lower VED on exactly the same vehicles.
	We also look forward to the hon. Member for Eastleigh explaining that when he told the News of the World that
	If people choose to buy the most polluting cars they must recognise the environmental cost,
	he meant to say that if people choose to buy the most polluting cars they must recognise the environmental cost sometimes.

Christopher Huhne: Perhaps the hon. Gentleman does not realise that the rural discount applies only to the bands below top band G of vehicle excise duty. That fully meets his point.

Paul Goodman: I am aware of that, but I must not be drawn back into metaphysical speculation about an amendment that I cannot describe. Were I able to do so, I would be able to answer the point, but you would rule me out of order Mrs. Heal, so as I do not want to provoke your wrath I shall press on.
	Regardless of the Liberal Democrats' internal discussions, one conclusion is certain. Before seeking to provide special treatment in the Finance Bill for households in sparsely populated rural areas, one needs to be able to provide a robust definition of such households and areas that will hold good in all circumstancesa definition that will stand up to legislative scrutiny.
	That requirement brings us neatly to Liberal Democrat amendment No. 22, which was also tabled by the hon. Members for Falmouth and Camborne and for South-East Cornwall. Does the amendment offer such a robust definition? In our view it does not; it simply dumps the problem in the lap of Ministers and would compel them to define, in unamendable regulations to be tabled at a future and unspecified date, households with a postcode in rural areas. Presumably that would take place after the Bill has become law, which raises the question: what would happen to the amendments if they were accepted and the Bill was enacted and became enforceable in the meantime?

Julia Goldsworthy: A clear definition is set out by the Countryside Agency, with reference to the distance of certain areas from a population centre. It would not be complicated to apply that definition to England and Wales and to find a way to apply similar criteria to Scotland. The amendments could thus be tabled on Report.

Paul Goodman: If so, the Liberal Democrats might have found a clearer way to spell out a full definition in their amendments. Furthermore, Members and other people with an interest in the measures may find other definitions of sparsely populated rural area, which could be introduced in the Standing Committee. There could be some controversyat the very leastin the hon. Lady sticking so precisely to one definition. However, that is merely an introduction to the deep problems posed by amendments Nos. 25 and 21, to which I shall turn shortly.
	With reference to the consultation proposed in amendment No. 22, why is the Countryside Agency the only body named? What about other Government bodies with an interest in rural areas or the environment, such as the Environment Agency or the Air Quality Forum? What about non-governmental bodies with an interest in rural affairs, the environment and vehicle excise duty? Transport 2000, Friends of the Earth and Greenpeace have made comments on the Government's VED proposals, to which I shall refer in the clause stand part debate. If amendments Nos. 25 and 21 were successful and the Liberal Democrats obtained the changes to VED that they seek, how would those changes be implemented in the time gap between the passing of the Finance Billif it is passedand the subsequent laying of regulations before Parliament?
	Other questions follow. Is it right that a multimillionaire driving a polluting vehicle and living in a mansion should pay a reduced rate of VED on that vehicle if he registered it before 23 March? [Hon. Members: David Cameron.] That was not the gentleman I had in mind, but I am grateful to Labour Members for drawing the matter to my attention. I do not believe that he is a multimillionaire. Would it be right for such a mythical and imaginary person living in a sparsely populated rural area and owning a polluting vehicle to pay a reduced rate and then move out of that area? Is it really fair that someone who does not live in a sparsely populated rural area and who owns a green vehicle does not pay a reduced rate and then moves into that area?

Christopher Huhne: Under the proposals, it is clear that if such a person were to own a green vehicle, they would pay zero duty whether they lived in a sparsely populated rural area or not.

Paul Goodman: I am glad to have that clarification from the person who is clearly leading for the Liberal Democrats in this debate. If the hon. Gentleman looks at the amendment paper, he will see that the amendment to table A, which deals with people who have registered cars before 23 March, applies to a cut in the rate for all vehicles, including the most polluting. I shall come to that point in a moment.
	Amendment No. 25 seeks to reduce VED rates for the most polluting vehicles registered before 23 March this year, while amendment No. 21 seeks to leave unchanged VED rates for the most polluting vehicles registered after 23 March. There is a case for leaving unchanged the VED rates levelled on the most polluting vehicles that have already been registered by people who live in sparsely populated rural areas, but I find it very hard to see a convincing case for cutting those rates, which is what the Liberal Democrats are proposing.
	There is also a case for leaving unchanged VED rates levelled on the most polluting vehicles registered after 23 March, just as there is a case for raising VED rates levelled on those vehicles, as the hon. Member for Wolverhampton, South-West (Rob Marris) sought to doif I can turn metaphysical for about 10 secondsin amendments that were not selected for debate. However, there is surely no case whatever for seeking simultaneously to leave unchanged VED rates on the most polluting vehicles in some rural areas while seeking to raise VED rates on those vehicles in these areas. The Committee will agree that one cannot do both at once. I do not want to be ruled out of order, so all I will say is that hon. Members only have to read the amendments tabled for the debate to see that one political party has sought to do both at once and, needless to say, it is the Liberal Democrats.

Julia Goldsworthy: Is it therefore my understanding that the hon. Gentleman and his party would make no changes to the VED tables as laid out by the Government in the Finance Bill and that he and his party think that we have a satisfactory state of affairs to take forward?

Paul Goodman: I shall come to all that in the clause stand debate. If the hon. Lady is not happy with my answer, I will be happy to give way to her.
	As I said, we cannot discuss in detail a tax rise proposed in an amendment that was not selected for debate, so I will not seek to explore further the mystery of how the Liberal Democrats propose simultaneously to raise a tax while leaving it completely unchanged. I will, however, assure the Committee that the Conservative party will do all that it can tomorrow, as people vote in the local elections, and in the months to come to raise this mystery and the incoherence of these amendments on the doorstep and at every opportunity with voters whenever the issues of green taxes or the environment are raised. I am afraid that it is the same old story. It is one thing for one group of people outside and another thing when it comes to tabling amendments to the Finance Bill. The Liberal Democrats have a choice. They can be a serious potential party of government or they can be fringe operation whose muddled, ill-thought-through and opportunistic contortions provide hours of harmless entertainment for all the rest of us.
	On the basis of these amendments, they have chosen to be purveyors of entertainment. I urge the Committee to reject the amendments.

John Thurso: I rise to support the Liberal Democrat amendments, but first I want to set out the nature of the problem that my constituents face. Any of my constituentsthere are quite a few of themwho are watching this afternoon's proceedings on the parliamentary channel will have been somewhat bemused by both the tone of the remarks and the risible nature of the conduct of the hon. Member for Wycombe (Mr. Goodman), in particular. For them, the amount that they have to pay for motoring is a very real issue, as are the extra costs that they bear not simply through VEDas will happen under the Billbut through the excess that they pay on fuel costs.
	Let me set out the problem in an area that I confidently expect that nobody will dispute is genuinely sparse. I refer to Caithness, Sutherland and Easter Ross. Some parts of Sutherland have a population density that is somewhat less than that of the Sahara desert. The area is 3,400 square miles and there is no public transport whatsoever available for very large parts of it. The vast majority of people who live there are crofters and small farmers who make a living by operating the croftas there are so many Members present who have no experience of Scotland, I will remind them what that is. It is a smallholding with two or three acres of in-by land and access to common grazing. It is not something that anybody is going to make a vast amount of money on. Those people will croft part-time and they will work part-timeperhaps going to sea; perhaps doing something else.
	The likelihood is that those peoplethe majority of whom will be on modest or low incomeswill have only one vehicle. That one vehicle will double as the family transport and the farm workhorse. That is the vehicle that they will have to use. They need a vehicle of a certain size to be able to operate the farm and they have to use it for other things that they have to do, such as taking the kids to school. First, people in that area have no choice. There is no public transport, unlike in many of the constituencies represented here this afternoon, where public transport is available. Secondly, and most importantly, there is no congestion of any kind. Of course, all those who are interested in climate change will understand that congestion multiplies the effect of emissions fairly considerably.

Robert Smith: My hon. Friend also needs to make the point that public transport would probably be an environmentally inefficient way of providing transport in such a sparsely populated area. It is probably more efficient for people to use their transport when they need it, rather than to rely on the marginal running of buses that would often be empty.

John Thurso: My hon. Friend makes that point extremely well. A bus with one person in it is far more polluting that a car with one person in it. He is absolutely right.
	The objective that the Government have set out to achieve with the increase in vehicle excise duty is extremely laudable. It should be the case that more polluting vehicles are punished and, broadly, we want to see a reduction in polluting vehicles and in emissions. However, much of the debateincluding the discussions that we have heard todayhas been characterised by references to what people are wont to call Chelsea tractors. I am not persuaded that that is the appropriate way for the debate to proceed. We are unable to go into any detail today, but I am not persuaded, as a point of principle, that taxation of ownershipin effect, that is what vehicle excise duty doesis the most appropriate way to tackle pollution and congestion. I would look to a form of national road user charging as the appropriate method to do that. In addition, I very much doubt whether any great increase in vehicle excise duty will have much impact on the owner of a Chelsea tractor. Such people tend to live in million-pound homes and have six-figure incomes, so I do not think that they will notice it very much. However, my constituents on whom the increase is to be imposed will see it as a real burden. As I have already said, such people typically have low or modest incomes.
	I have raised this matter before in Westminster Hall. The price of petrol and diesel in Wick, Thurso, Durness or any of the other remote areas in my constituency tends to be between 10p and 15p more than even the dizzy metropolitan heights of the cost in Inverness. Typically, the premium averages out at about 12p a litre. One of my constituents who owns a car with an average consumption of sufficient substance to tow the sheep to market will pay something like 200 a year more for their fuel than a person with exactly the same vehicle who operates in an area with a more competitive market for fuel, such as Inverness, Edinburgh, or even London.

Kevan Jones: I always enjoy the hon. Gentleman's contributions. He has been cut loose from the Front Bench and takes opposing views to those of some of the more radical elements of his Front-Bench team. Does he agree that he should encourage his constituents to consider alternatives, such as liquefied petroleum gas, that would not only be more environmentally friendly to his beautiful constituency, but allow them to pay less vehicle excise duty?

John Thurso: I hope that the hon. Gentleman will take up my offer of coming to visit me sometime in the north. As far as I am aware, only two garages in my constituency offer LPG. One is in Golspie, and I think that there is one in Thurso, too. For people in vast swathes of Sutherland, having to make a return trip of 100 miles to top up with LPG would not be hugely helpful.

Kevan Jones: I suggest that the hon. Gentleman does something that I did in my early days on Newcastle city council by encouraging his local council to make their vehicles run on LPG. That creates a local market and ensures that bunkering facilities can be provided, even in isolated communities such as his.

John Thurso: I would be delighted to give such encouragement to the Highland council, which covers three, if not four, constituencies. In parentheses, I should tell the hon. Gentleman that any of my councillors in Thurso who go to a council meeting in Inverness make a round trip of 240 miles, which perhaps

The First Deputy Chairman: Order. I ought to remind hon. Members that we are going a little wide of the amendment. Perhaps we can get back to the specifics once again.

John Thurso: I apologise for straying, Mrs. Heal.
	My constituents already pay an increase to the Treasury due to the increased VAT that they pay because of the higher price of their fuel. It is thus perfectly appropriate to offer them some form of alleviation. My hon. Friends have tried to achieve that through an amendment to this imperfect Bill on vehicle excise duty. The way in which they have tried to achieve that in principle, if not in detail, gives us a good way forward.
	The key point is that those who live in genuinely remote rural areas suffer a real burden. It was extraordinary that the hon. Member for Wycombe was so dismissive of that burden, although it might explain why the Conservatives regularly come fourth in elections in my constituency and much of the Highlands. His speech has probably done more for my party's prospects in elections in Scotland than anything that I could ever have done. The amendment is a sensible way forward.

Paul Goodman: As the hon. Gentleman has such confidence in his party's amendment, can he confirm that his party will be putting it to the vote?

John Thurso: I am a humble Back-Bench Member in this army. I do not have the slightest idea what my Front-Bench colleagues intend to do. It may be that the response from the Government Front Bench will be of such wonderful acceptance and pleasure at what my hon. Friend the Member for Falmouth and Camborne (Julia Goldsworthy) has proposed that all will end well. Never mind, we will hope for the best and move on.
	There is a technical problem with the amendment. In drafting it, my hon. Friends have referred to the Countryside Agency, and the agency has no remit in Scotland. A fly was cast over my hon. Friend the Member for Falmouth and Camborne as to what the definition should be. That is always a typical answer of the Treasury when a Member is proposing any scheme. The response is Ah, tell me where the definition is and I will tell you what the problem is.
	We should take on board the fact that the EU has well-defined sparse and remote rural areas and, in many countries, has successfully introduced schemes to help such areas. It recognises the problems that they have. Whatever the definition, it seems to me that if we accept the principle of helping those who need help, which is what I thought that those of us on the progressive side of politics were seeking to do, and we wish to help people on modest incomes who need help, we can find the means.
	I am grateful to my hon. Friend the Member for Falmouth and Camborne and other Front Bench colleagues for proposing the amendment. I hope that they will press it if the Government do not accept it, and that the House will support it. I congratulate them.

Stewart Hosie: It seems that there is a move to tackle two separate issues. The first is to create a vehicle excise duty regime that will offer a genuine disincentive to unnecessary use of high CO 2 emitting vehicles, and the second is to protect car users in rural areas where there is no alternative to the car and unnecessarily high costs.
	The amendment draws attention to a number of flaws. First, the main penalty faced by drivers in remote and rural areas is the regular high cost of fuel, not the one-off cost of VED. The price of fuel went through the 1 a litre barrier in many parts of Scotland some time ago. The issue would be far better resolved by a sensible and sensitive fuel-tax regulator to lower the level of duty when world oil prices rise. It is a great pity that such a regulator was opposed by the Liberal Democrats and others last year.
	The issue of fuel cost is extremely important. The last available rural Scotland price survey showed that in all of rural Scotland the price of road fuel was 6.3 per cent. higher on average than in urban areas. In the rural highlands and islands area, the price was 9.7 per cent. higher. This is a genuine issue.
	The second flaw is that the amendment does not recognise the difference between genuine working vehicles and other high CO 2 emitting vehicles that happen to be in rural areas, for which a disincentive for high use or unnecessary usage would be welcome. For vehicles that are not used for genuine working purposes where the owners are as close, perhaps, to a supermarket or a filling station as the owners of vehicles in some of the suburban parts of my constituency, a reduction in VED would be unnecessary.
	The third flaw is the definitiondefinition is incredibly importantof a sparsely populated rural area. The hon. Member for Falmouth and Camborne (Julia Goldsworthy) referred to the Countryside Agency's definition. Would she prepared to accept amendments to the amendment? Obviously the agency has no locus in Scotland or in Wales. That has been accepted. However, there are a number of definitions. The definition used by the Scottish Executive contains a sixfold description of rural and urban areas. That covers 98 per cent. of Scotland's land mass and 18.7 per cent. of the population. That definition would be wholly inappropriate.
	There is also the Randall definition, which is based on sparsity of population. A sparsely populated rural area is defined as one with less than one person per hectare. The definition is based on local authority areas that cover Aberdeenshire, Angus, Argyll and Bute, Dumfries and Galloway, east Ayrshire, the highlands and so on. That definition would cover 89 per cent. of Scotland's land mass and take in 29 per cent. of the population. The use of such a definition would also be wholly wrong.
	I am on record in this Chambertwice, and I stand by itas saying that there is a world of difference between a Land Rover taking animal feed up a snowy field in late spring to early lambs, and a Chelsea tractor sitting outside a flat in Kensington. Of course something needs to be done to help genuine working vehicles.

Kevan Jones: I hear what the hon. Gentleman is saying, but surely vehicles working in fields are already covered by red diesel, for example.

Stewart Hosie: The Financial Secretary will correct me if I am wrong, but I believe that the Budget documentation referred to discomfort with the red diesel regime, because many on-road vehicles now fall within it. So I am not sure that the hon. Gentleman's point is particularly helpful in this regard.
	In intervening on the hon. Member for Edinburgh, North and Leith (Mark Lazarowicz) during a previous debate, I argued that there is a difference between working vehicles and Chelsea tractors. He agreed and suggested that there must be a better way of dealing with the problem. I agree entirely. We need to establish a regime that does not penalise genuine working vehicles. We should have started with an analysis of the impact of high fuel and high VED, and I hope that we can soon establish a sensible fuel tax regulator similar to the one proposed previously. I hope, too, that the Government will consider what the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) said in a previous debate about an EU derogation for the areas to which he referred. Of course, there are other ways of defining remote and sparse, but those terms are not defined in the amendments before us.
	We will not support the amendments because they are ill-conceived and ill-thought through. They seek to reduce vehicle excise duty for too many people, which would be unhelpful in terms of the environment.

Mark Tami: Define we.

Stewart Hosie: The hon. Gentleman will be aware, given that he has been here for most of today's debate, that this has been a very sparsely populated debate, just as many of the parts of the country that we wish to help are sparsely populated. The amendments would not provide such help.

Christopher Huhne: The hon. Member for Dundee, East (Stewart Hosie) made much of the difficulties that rural areas face in paying high fuel prices. I sympathise greatly with their situation, to which my hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso) also referred. I should however point out to the hon. Member for Dundee, East that money is fungible, and that although the people to whom he referred may be experiencing a disadvantage as a result of high fuel duty, if they have a corresponding and offsetting advantage through a reduction in vehicle excise duty, they will be free to spend that money as they like. That would deal with the problem, which is precisely what the amendments before us are meant to do.
	The United Kingdom has a difficulty, in that the main instrument available for changing behaviour in terms of greenhouse gas emissions and climate change is green taxes. However, green taxes, of which two thirds comprise fuel duty, have fallen from 3.6 per cent. of gross domestic product in 2000 to 3 per cent., according to the latest figures. The Budget proposals will in fact lead to a further fall in green taxes as a percentage of GDP. One reason for the reluctance to rely more on green taxes and the price mechanism in providing an incentive to change behaviour is precisely those difficult cases such as rural areas. The relevance of amendment No. 21 is that it would deal with a specific set of problems and release a wider instrument to be used against greenhouse gases.

Rob Marris: The hon. Gentleman is speaking in favour of amendment No. 21, which, as I understand it, is not revenue-neutral. He is supporting an amendment that will cut green taxes, so he is speaking against his case.

Christopher Huhne: The hon. Gentleman has participated in such debates for a number of years and is extremely well informed. He well knows that it requires a Minister of the Crown to table for debate an amendment that raises revenue. The Paymaster General seems to disagree, but that is my clear memory from last year. The amendments on self-invested pension plans were not selected for debate and the reason given was that they would raise revenue. The right hon. Lady was not prepared at that stage to table such an amendment, but I am pleased that by the pre-Budget report in October she had changed her mind, along with all the other Treasury Ministers.

Paul Goodman: So that we are all clear, may I ask the hon. Gentleman, who is making the second Front-Bench speech on behalf of his party, which is his preferred amendment for table B? Is it amendment No. 21 or amendment No. 26?

The First Deputy Chairman: Order. I remind hon. Members that amendment No. 26 has not been selected.

Christopher Huhne: Thank you, Mrs. Heal. I shall speak about the amendment under discussion and highlight the difficulties faced by people in sparsely populated rural areas as a result of the high cost of fuel and of motoring.
	In urban areas about 30 per cent. of households have no access to cars because they can rely on public transport. In rural areasnot even sparsely populated rural areasonly 8 per cent. of households are carless. That underlines how important the car is as a means of getting to work, getting to the GP's surgery, accessing basic services, accessing accident and emergency, doing the school run, and so on
	My hon. Friend the Member for Falmouth and Camborne (Julia Goldsworthy) pointed out that households in rural areas spend more than 70 a week on transport, compared with 45 a week in regional built-up areas. It is the operating costs of cars, including fuel, that make up the difference.That is why any reliance on green taxes to change behaviour must take account of the high dependency of all households, including poor ones, on fuel in rural areas, and why it is important to propose measures that can alleviate the costs of transport in rural areas as part of a package to encourage us towards more sustainable personal transport. We strongly support the Chancellor's intention to raise fuel duty in line with inflation in September, as announced in the Budget. Relief for rural areas makes that policy more robust and defensible because it takes the edge off for some of the worst losers.
	The discount in the proposal is designed not for anyone living on the urban edge, but for areas where distances are important. Hon. Members are right to say that the Countryside Agency has defined the more sparsely populated parts of England, which are areas of Cornwall, Devon, Cumbria, Northumberland and the Fens. The definition covers the 5 per cent. least densely populated parts of England. It is easy to extend that to Scotland and Wales by regulation, as proposed. That answers the hon. Member for Dundee, East. The definition will be exactly equivalent. I look forward to replies from Treasury Ministers when they are in a more co-operative mood to honour written answers.

Stewart Hosie: Is the hon. Gentleman speaking of the 5 per cent. population in the most sparsely populated areas? Is it the bottom 5 per cent. only, based on sparsity of population? Is that the definition?

Christopher Huhne: The hon. Gentleman may have misunderstood me. The Countryside Agency's definition of a sparsely populated rural area in England is of the least densely populated 5 per cent. of areas in England. If the same criterionthe same lack of densityis applied to Scotland, I have no doubt that it would apply to a substantially greater part of Scotland than of England, as Scotland forms 40 per cent. of the landmass of the United Kingdom. As this is a taxation matter, exactly the same definition should be applied in Scotland, Wales and England.
	There is a very clear and robust definition, which is perfectly capable of handling the issue. I refer those hon. Members who would care to have more detail to the excellent paper of Messrs. Bibby and Shepherd, entitled Developing a new classification of urban and rural areas for policy purposesa methodology, which is published on the Office for National Statistics website.
	Some sparsely populated areas, unlike many rural areas, are still declining. About 600,000 people live in the sparsely populated English areas out of a combined rural population of some 9.5 million. Those areas have particular problems in achieving one definition of sustainabilitysomewhere that people want to live and workand the underlying problem is remoteness. There are dramatic differencesfor example, in broadband connectivity, with just 33.4 per cent. of households in villages in the sparsely populated rural areas having such access, against more than 75 per cent. in villages in the less sparsely populated rural areas. People are further from public services, such as those provided by GPs, hospitals and secondary schools. Bus transport is even less frequent. The economy is clearly less successful. Income poverty is clearly higher than in other rural areas, although it is still broadly in line with the national average. That is why it makes sense to introduce a discount that helps those areas in particular.
	In cost terms, this is a modest measure, partly because there are relatively few households in those sparsely populated rural areas and partly because such a high proportion of them are recorded as a second or holiday homes and therefore would be ineligible for the discount. Indeed, in sparsely populated villages, the Countryside Agency reports that almost one in 10 household spaces is recorded as a second or holiday home; about five times the number found in similar-sized settlements elsewhere.
	There is another mitigating factor on cost. There would be no discount on the new band G or the vehicles that emit most carbon. The cost of up to 50 million a year for England, using the most conservative assumptions about the size of vehicles, is small by the side of the extra revenue that the Chancellor can hope to gain with both the indexation of fuel duty and a more radical approach to the progressivity of vehicle excise duty.
	Although other proposals that deal with revenue raising cannot be debated because of the rules of the House, it is worth pointing out that the 2,000 revenue raising proposal, for example, would more than adequately fund the rural discount. This is a sensible package that would enable green taxes to do their work in helping to change behaviour, without raising taxes overall. As the increases in vehicle excise duty would operate for new cars only, the impact on purchasing decisions is open and transparent. No one could claim that they had not been forewarned. Moreover, there is a benefit for those with existing cars in sparsely populated rural areas that recognises their circumstances, thus allowing greater weight on fuel duty and other green taxes than would be allowed otherwise.
	I note that the Liberal Democrats are the only major party to attempt to grapple with the issue. If we consider what the Chancellor has done, as opposed to the spin that he likes to put on the Budget, the reality is that green taxes have been falling, year on year, as percentage of GDP and, indeed, as a percentage of the overall tax take. I am afraid that the Conservative Front-Bench spokesman, the hon. Member for Wycombe (Mr. Goodman) has confirmed that the Conservatives show no interest whatsoever in using the price mechanism to change behaviour in this direction, and it is matter of regret that, in their proposed amendment to the general motion on the Finance Bill, they did not mention the environmental objectives that are such a clear and important part of such policies; at least that is something that the Chancellor recognises in words, if not in deeds. I very much hope that the House will support the amendment, as it clears the way to a substantially more radical approach to other green taxes.

Malcolm Bruce: I am grateful to my colleagues for tabling this group of amendments and enabling us to have this debate, because it demonstrates that, at least on the Liberal Democrat Benches, there is a recognition that environmental taxes have a social consequence and need to be refined. They cannot be applied as a blunt instrument. The speech made by the hon. Member for Wycombe (Mr. Goodman) on behalf of the Conservative Front Bench confirms to anyone who listened to it why the Conservative party is almost non-existent in Scotland. It has no understanding of what sparsity and remoteness are about, other than in terms of its own support.
	My hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso), who represents a constituency that has all those characteristics and has a real understanding of the matter, has given a pretty coherent account of why the needs of people in such areas should be addressed by the House in the way that the amendments try to do.
	In a brief intervention I simply want to make the point that car ownership in rural areas, and certainly remote and sparsely populated rural areas, is not a luxury but a necessity, and the costs imposed are a real burden. There are factors that need to be taken on board. For example, the Scottish Executive have been reviewing their definition of poverty because on a previous definition car ownership meant that one could not be poor. In reality, poor people in rural areas simply cannot function without owning a car, yet under a previous definition people owning a car were not allowed to call themselves poor. That is the sort of absurdity that one gets into when the definitions do not take into account the reality on the ground. The amendments seek to do that.
	My hon. Friend the Member for Eastleigh (Chris Huhne) has demonstrated clearly that this is a coherent and balanced part of an overall policy, and one that the Conservative party would be well advised to take a little more seriously and not try to predetermine when, frankly, its own policy has no intellectual coherence whatever. In particular, it showed no interest in the problems of poor people living in rural areas, only a desire to have a go at the Liberal Democrats for really trying to address the issue. I just note in passing that the Scottish Nationalists sent the hon. Member for Dundee, East (Stewart Hosie) to make the argument, not one who represented a rural or sparsely populated area who might have had some greater understanding of the problems being addressed.

Stewart Hosie: I thank the hon. Gentleman for giving way, not least because I am the party's Treasury spokesman and this is my brief. Two thirds of the landmass of my constituency is in Angus, and one ward is fully rural. I have a perfect understanding of the issues that the hon. Gentleman is discussing.

Malcolm Bruce: We shall see, but I do not think that the hon. Gentleman's contribution demonstrated that understanding. He was implyingthis was what slightly nonplussed methat he thought it unfortunate that our amendments would have qualified a greater proportion of the population of Scotland to receive the benefit. I should have thought that a Scottish MP would welcome the fact that amendments were being tabled that had particular relevance to rural areas of Scotland and from which a greater proportion of Scottish households and individuals would benefit. My hon. Friend has confirmed that applying the English Countryside Agency's definition to Scotland would inevitably reach a greater percentage, for the simple reason that we are defining remoteness and sparsity and the problems that go with them.
	I have just been dealing with a matter relating to fuel poverty in Scotland. Central heating fuel bills in Scotland can be 68 per cent. higher than in the south of England, and the same applies to transport costs for many people living in the north-east, the north of Scotland, the borders and the rural areas of Scotland. Through necessity, transport costs are much higher. Another problem is that, given that people on low incomes have to struggle to pay high excise duties and higher fuel charges, one thing that often goes by the board is regular vehicle maintenance, which has detrimental effects on the environment.
	I commend the amendments, which address a real issue and show the understanding of a party that supports the case for developing green taxes, that in order to ensure that those taxes do not fall disproportionately on people in disadvantaged areas we must introduce refinements. That is what the amendments seek to do and I commend them to the House.

John Healey: The debate has been entertaining, Sir Michael, particularly for Government Members. It has also been comprehensive and, if I may so, entirely between the Opposition parties. That is also entertaining, given that these are the parties that are supposed to have reached some consensus on climate change. That comprehensive debate leaves me, in all honesty, with very little else to say.
	The amendments proposed by the hon. Member for Falmouth and Camborne (Julia Goldsworthy) call for the introduction of regional rates of excise duty so that those with a postcode in rural areas can pay less than urban areas. I have both principled and practical objections to those proposals. UK vehicle excise duty rates are set at the current level for good reasons. First, they raise revenue to fund essential services and, secondly, they help to achieve environmental objectives, which apply equally to rural areas as to the rest of the UK.

Christopher Huhne: Will the Minister give way?

John Healey: No, I will not; I am responding to the amendments proposed from the Liberal Front Bench by the hon. Member for Falmouth and Camborne. That is what I am responding todespite the hon. Gentleman's own speech.
	In addition to the technical and practical deficiencies of the amendments, introducing a separate rate of vehicle excise duty for rural areas would also present significant administrative difficulties as well as compliance problems. Motorists could easily register vehicles in designated sparsely populated rural areas and then use them exclusively or predominantly in urban areas. Other hon. Members have already mentioned the technical and practical difficulties, to which I am now adding administrative and compliance difficulties.

Julia Goldsworthy: I noticed that the Minister referred to the environmental objectives of vehicle excise duty. Will he provide further detail on the impact on behaviour of the structure that he has proposed? Will he also recognise the burden on people living in remote rural areas and the fact that they are reliant on cars because they do not have any realistic alternative? I hope that he will take seriously the points that Liberal Democrat Members have passionately made.

John Healey: I am disappointed in the hon. Lady. I did not accept the intervention of the hon. Member for Eastleigh (Chris Huhne), who gave his question to the hon. Lady to put to me. The question she poses, however, is a question for the clause stand part debate, not our debate on vehicle excise duty amendments. I do not accept that the Liberal Democrat amendments are desirable or workable. I do not accept that a principled case has been made for them. I believe that they would prove administratively complex and open to abuse. If pressed to the vote, I urge my hon. Friends to reject them.
	Amendment negatived.
	Question proposed, That the clause stand part of the Bill.

John Healey: We had a wide-ranging debate on a narrow set of amendments, but I should make some remarks in the clause stand part debate. In general terms, I welcome the fact that climate change is increasingly recognised as one of the most serious global challenges that we face. In the UK, we produce just 2 per cent. of global greenhouse gas emissions, but we must build on the progress that we have made on our Kyoto obligations. We are and remain one of the few countries on track to meet our obligation. We must also build on our ambitious domestic goals to cut carbon and move to a low-carbon economy. It is right to do more and it was right for the Chancellor to have done more in his Budget announcements.
	Transport is one of the key sectors in which we need to build on existing reforms. It is the second largest source of carbon dioxide emissions in the UK and a source of significant air pollution. The vehicle excise duty system has been radically restructured, and it is now based on carbon emissions. Under this Labour Government, the UK has taken the lead in introducing a structure for vehicle taxation that differentiates according to CO 2 emissions, just as we did with the climate change levy and the first economy-wide emissions trading scheme. The European Commission has recommended that graduated VED should form the blueprint for vehicle taxation across the EU. The graduated VED system is designed to provide a signal to consumers at the point of purchase to bear in mind the environmental impact of the models that they are considering.

Julia Goldsworthy: rose

Christopher Huhne: rose

John Healey: I shall give way to the hon. Lady, who is leading for the Liberals in this debate and who is shadow Chief Secretary.

Julia Goldsworthy: Returning to my earlier intervention, what impact does the Financial Secretary think that the new VED band will have on consumer behaviour?

John Healey: If the hon. Lady studies the evidence on the impact of the graduated VED scheme, she will see that the VED scheme at the point of purchase has a relatively modest impact on consumer behaviour. The point is to incorporate into the system signals to the consumer at the point of purchase to consider the environmental impact and environmental performance of the models that they are considering buying. The system is also designed to provide signals to car manufacturers to encourage still greener engine design and performance.
	Clause 13 builds on the environmental signals already in place by reducing VED band A to zero. It reduces the VED for cars in band B by 35 a year and for cars in band C by 5 a year. It freezes VED for cars in bands D and E, and it increases VED for vehicles in band F by 25. To further strengthen the environmental signals, the clause also introduces a new band G, which increases VED for the most polluting cars.
	In the run-up to the Budget, we received representations from a number of organisations, including the RAC Foundation, which advanced the argument that now is the right time to widen the differentials between the least and the most polluting bands. Clause 13 does just that and it means that the differential between the lowest VED rate for petrol cars and the highest, which was 100, is now more than double that at 210. The Budget announcements will see VED frozen or reduced for 50 per cent. of cars, with around 3 million cars now paying VED at 100 or less. The clause 13 reforms build on the existing VED framework and support the drive for further falls in transport emissions for new cars in the future.

Julia Goldsworthy: The changes in clause 13 are one of the main headlines in the Budget and were used by the Chancellor to bolster his green credentials. He announced with great fanfare that there would be a new band of VED. Incidentally, given the fight to get on the front foot on that issue between the Conservative party and the Labour party, I am surprised that the Conservatives did not call for this clause stand part debate.
	In his Budget speech, the Chancellor said:
	I propose to radically reform vehicle excise duty.[Official Report, 22 March 2006; Vol. 444, c. 295.]
	The Financial Secretary has said this about the measure:
	The strengthening of environmental incentives announced in the Budget is designed to give a clear signal to motorists to consider the environmental performance of vehicles at the point of purchase
	which is a point that he has just restated. The reality is that the measure involves the smallest possible change to the most polluting vehicles. The new band G includes a maximum charge of 250 per annum, which means that the most polluting carscars that emit more than 225 g of CO 2 per kilometreattract a price differential to the next band down that is equivalent to less than half a tank of petrol. What difference will that make to consumer behaviour? The environmental impact of the change in consumer behaviour will be negligible. My hon. Friend the Member for Cambridge (David Howarth) tabled a parliamentary question about the issue and was told that the estimated carbon savings of the new higher band of vehicle excise duty would be equivalent to 0.06 metric tonnes of carbon emitted by 2010. He was told, however, that
	calculating this figure is complex and subject to a significant margin of error.[Official Report, 28 March 2006; Vol. 444, c. 972W.]
	As there is virtually no impact on behaviour, the initiative is an eye-catching but ultimately meaningless measure.
	On what evidence did the Treasury base its decision to set the new band at a maximum of 215? The Energy Saving Trust produced a significantly different figure and came to some very different conclusions. It agrees that a new band G should be introduced, but it made it clear that
	very high carbon cars should pay significantly higher VED than they do now.
	It reasoned that the average carbon dioxide emissions from cars sold to the private consumer market has increasednot decreasedsince 200203. That should be of concern to the Minister, as private car sales account for nearly half of new annual registrations in the UK or 1.2 million sales. We therefore need to change consumer behaviour, and Government intervention is required to promote and incentivise the low-carbon car market.
	Another key finding in the Energy Saving Trust report is that vehicle excise duty has had little impact on the carbon profile of the private car market. It argues that the proportion of vehicles falling into band F is too high at 50 per cent., and that the differentials are too low to change behaviour. Although there has been some tinkering with differentials and bands in the Bill, the differentials remain incredibly small. For example, the differential between bands F and G equates to less than a tank of petrol, which is hardly enough to change behaviour. Does the Minister believe that the differentials in the Bill are sufficient to achieve a significant impact on consumer behaviour and, if so, on what evidence is that view based? The Energy Saving Trust calculated that the differential for the new band should be about 2,000, rather than 50, to have an impact on behaviour. Will the Government consider adopting such a measure in future years?

Kevan Jones: I am listening carefully to the hon. Lady, but less than 10 minutes ago Liberal Democrats moved an amendment to make rural areas a tax-free haven for gas guzzlers and petrol heads. Is she trying to tell the House that those areas are exempt from the provision, but that the rest of us must go down the green route?

Julia Goldsworthy: I was making the point that they are much more vulnerable to increases. We are therefore trying to release the mechanism so that it can be used to change behaviour effectively. In rural areas, it does not matter how the VED bands are set as people have to use a car. If they are on a lower income they are forced to spend more and more, so we are trying to provide relief for people who are disproportionately and unfairly affected. The mechanism can be used to change behaviour if there is an alternative.
	A series of amendments on the need for wider differentials was tabled by Liberal Democrat and Government Members who tried to provide a solution to the problem. I accept that it is not appropriate to refer directly to those amendments, but I urge the Government to consider them. They should investigate the differentials required to make an impact on behaviour and consider ways of implementing them. In the longer term, road user charging may represent a fairer alternative. The Government are looking into the feasibility of such a scheme, which Liberal Democrats support, and I hope that they will seriously consider the practicalities and time scales. An effective mechanism is required so that motorists pay when and where they are driving. That is a fairer way to target relieving congestion in problem areas without penalising people in rural areas, and it provides freedom from pollution, congestion and the effects of climate change. I hope that the Government will consider that alternative.
	In conclusion, the decisions in the Budget and the proposals in the Bill mean that green taxes will continue to drop as a proportion of the total tax take, regardless of the Chancellor's warm words. The Bill was an opportunity to create real incentives for people to choose more environmentally friendly cars. It was an opportunity even to consider more radical proposals such as road user charging. It is an opportunity that has been wasted, and in its place we have seen tokenism of the worst kind.

Rob Marris: We should review what the Government have done as regards motoring and emissions. In 1997, they introduced monitoring of CO 2 emissions from vehicles. They introduced bands A to F labelling on fuel efficiency. They carried out a major overhaul of the company car tax regime, which has led to a significant fall in the average emissions output of company cars. They introduced banding of vehicle excise dutythe graduated scheme that has been mentioned. This country is likely to more than meet its Kyoto targets. Between 1997 and 2004, there was a 10.7 per cent. cut in the new car average emissions of noxious gases, particularly CO 2 . Now, clause 13 introduces band G, with lower bands at the beginning of the scale.

Julia Goldsworthy: Will the hon. Gentleman give way?

Rob Marris: I will not, I am afraid, because I do not have time.
	There are some negatives. In recent years, private buyers have been buying fewer fuel-efficient cars each year. In 200304, the average figure for CO 2 emissions was 170 g per km. On average, that is higher than the figure for private fleet new vehicle purchases in 2002. In 2005, the UK average was 169 g per km, making us fourth worst out of the 15 European Union countries before accession. The western European average is 160 g per km. The European Union target, which is adhered to in principle by this Government, is to get average emissions for new vehicles purchased in the UK down to 140 g per km by 2008. Unless something dramatic happens, there is no prospect whatsoever of our reaching that target, given that our average in 2005, three years beforehand, was 169 g per km. In some ways, we are even behind China, which has legally binding maximum CO 2 emissions for cars based on their weight.
	I am disappointed with clause 13 in terms of where we should be going. Next year, we should hit gas guzzlers4x4s are not the only issue. MORI research for the Department for Transport indicated that 72 per cent. of people would swap their vehicles if there was a 300 or more differential on vehicle excise duty. Clause 13 is a start, but the new band G is not nearly enough of a differential.
	We have heard about people in rural areas going across the fields in 4x4s to do their spring lambing. I have to say to hon. Members that of the 10 highest CO 2 emitting cars, only the Chrysler Jeep SRT 10 comes into the category of a vehicle that one could take lambing. Those that do not include the Lamborghini Diablo, the Lamborghini Murcielago, the Bentley Arnage, the Aston Martin DB7 GT, the Ferrari 612 Scaglietti, the Aston Martin DB7 Vantage, the Lamborghini Gallardo and the Aston Martin V12 Vanquish. They all emit more than 448 g of CO 2 , compared with 109 g for some of the lowest-emitting vehicles, such as the Toyota Aygo, whether petrol or diesel. Band G is not set high enough. As the hon. Member for Falmouth and Camborne (Julia Goldsworthy) said, some 4x4 vehicles, for those who need them, emit considerably less than 200 g per kmthe Toyota RAV4, for instance. I urge my hon. Friend the Minister to look at this seriously and to do a whole lot better than clause 13 in next year's Budget.

Paul Goodman: Given that we have not had the chance to vote on the Liberal Democrat amendments for reasons that have not been satisfactorily explained, I shall contribute briefly to the stand part debate.
	Tables A and B are the key to the clause. It is clearly sensible in principle to use the tax system to encourage motorists to go green. It therefore follows that one should tax the most polluting vehicles most heavily and the least polluting vehicles least heavily, if at all. Changes to vehicle excise duty bands must therefore be carried out with conviction and at least look to make a difference to consumer behaviour.
	Let me sum up the consensus of opinion of the organisations that commented on the Government's proposals. It is that, although the Government are moving in the right direction, the changes lack conviction. Transport 2000 called the new top rate derisory and said that the changes would hardly pay for the new paperwork. Friends of the Earth called the changes utterly inadequate and said that they
	will not result in the widespread uptake of cleaner vehicles, and will, therefore, not reduce the rising cost of climate change to the transport sector.
	Greenpeace said that
	the Chancellor must know that 210 is far too little money to stop anyone buying a gas guzzler.
	On the lowest rate, it is not unreasonable to expect a tax incentive to be of some use to the consumer. Members on the Treasury Bench will be aware of the point that was made previously that no cars on which the new rate would apparently apply are currently available on the market. There therefore appears to be little conviction.
	There are two courses than an Opposition can take on the Government's proposed changes. They could table amendments to try only to reduce the take from vehicle excise duty because one cannot propose an increase in a Finance Bill. If the Liberal Democrats want to do that, that is up to them. We believe that that is an irresponsible approach and that the Opposition should look forward to 2009, when my hon. Friend the Member for Tatton (Mr. Osborne) will present his first Budget. We will try to provide greater incentives at the bottom band and consider heavier increases at the top. If the Liberal Democrats want to make tax and spending pledges, that is up to them, but we cannot say whether our proposal will be a revenue-neutral package or constitute a reduction.

Julia Goldsworthy: Will the hon. Gentleman give way?

Paul Goodman: I apologise but I want to allow the Financial Secretary time to reply. We cannot say now whether, in 2009, the incentives will be part of an overall package that tries to reduce the tax takewhich the Liberal Democrats propose todaywhether they will be revenue-neutral or constitute an increase.
	In summary, the Government are heading in the right direction by introducing a new zero bottom band and a heavier top band but that does not appear to be done with conviction because it will make little difference to what people consume in the market.

John Healey: Earlier, I set out the purpose and outlined details of clause 13 and I am glad that the hon. Member for Wycombe (Mr. Goodman) says that it is going in the right direction. It may interest hon. Members, especially the hon. Member for Falmouth and Camborne (Julia Goldsworthy), to know that in 1997 only 4 per cent. of the cars that were registered that year had emissions below 140 g per km. In 2005, the figure was 18 per cent. Our reformed vehicle excise duty system plays a part and makes a contribution, alongside other policies, towards driving down the average emissions by cars.
	I am especially grateful to my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) for reiterating many of the points that I made about the Government's strong environmental record. I take his point about gas guzzlers as an early representation for the Budget in 2007.
	I commend the clause to the House.
	Question put and agreed to.
	Clause 13 ordered to stand part of the Bill.
	Clauses 14 and 15 ordered to stand part of the Bill.
	Bill (Clauses 13 to 15, 26, 61, 91 and 106 and Schedule 14) reported, without amendment; to lie upon the Table.

DELEGATED LEGISLATION

Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),

Northern Ireland

That the draft Planning Reform (Northern Ireland) Order 2006, which was laid before this House on 8th March, be approved.[Mr. Watts.]
	Question agreed to.

EUROPEAN UNION DOCUMENTS

Motion made, and Question put forthwith, pursuant to Standing Order No. 119(9) (European Standing Committees),

Protection of chickens kept for meat production

That this House takes note of European Union Document No. 9606/05, Communication from the Commission of a Proposal for a Council Directive laying down minimum rules for the protection of chickens kept for meat production; and agrees that the Government should secure sustainable and affordable improvements to meat chicken welfare through effective and proportionate means, including a harmonised environment and inspection regime.[Mr. Watts.]
	Question agreed to.

SITTINGS OF THE HOUSE

Ordered,
	That, at the sitting on Monday 8th May, the Speaker shall not adjourn the House until any message from the Lords has been received, any Committee to draw up Reasons which has been appointed at that sitting has reported, and he has notified the Royal Assent to Acts agreed upon by both Houses.[Mr. Watts.]

BUSINESS OF THE HOUSE

Ordered,
	That, at the sitting on Monday 8th May, notwithstanding the provisions of Standing Order No. 16 (Proceedings under an Act or on European Union documents), the Speaker shall put the Questions necessary to dispose of proceedings on the Motion in the names of Mr Douglas Alexander and John Healey relating to European Union Documents not later than three hours after their commencement; proceedings may continue, though opposed after the moment of interruption; and Standing Order No. 41A (Deferred divisions) shall not apply.[Mr. Watts.]

MISSED NHS APPOINTMENTS

Motion made, and Question proposed, That this House do now adjourn.[Mr. Watts.]

Grant Shapps: I rise to raise the issue of missed appointments in the NHS and the extraordinary cost and impact involved. The matter first came to my attention through one of my constituents, Mr. John Mitchell, who I am pleased to say is watching the debate this evening. Mr. Mitchell, who is from Welwyn, missed a hospital appointment. Being a public-spirited gentleman, he kindly took the decision to send the East and North Hertfordshire NHS Trust a cheque for 15, as he wished at least to make a gesture to make good following his missed appointment.
	Imagine Mr. Mitchell's surprise when the trust, which is some 53 million in deficit, returned his cheque, saying that it did not need it or could not cash it, or something like that. Missed appointments cost the trust about 2.8 million a year. I pay tribute to John Mitchell for taking such a public-spirited approach. He had been to the dentist the previous week and seen a notice saying, If you miss your appointment, there will be a 15 charge. He therefore thought that the NHS trust would accept the money, and that it might help to make up for his missed appointment.
	That case sparked my interest in the subject, and the Minister will be interested to hear that I then fired off freedom of information requests to each of the 245 acute trusts in the country. I cannot reveal the details yet because I have not got all the information together. On Monday, however, I will have it, and I shall issue a report that I shall be happy to share. It does not take much to realise that if my medium-sized NHS trust is some 2.8 million adrift as a result of missed appointments, and if there are 245 acute trusts, including the ambulance trusts, in the country, we must be talking about a very large sum of money indeed.
	I want to address the issue of missed appointments and to find out what the Government intend to do about it. I also want to call for much more action than is apparently on the cards at the moment. I know that the issue has been raised with Ministers in the past, and that they said that they would take measures to cut the number of so-called no-shows. It is therefore a mystery to me that, two and a half years after they made that pledge, nothing has happened. I have the figures here for 2003, when there were about 5 million missed appointments, and 2004, when there were about 5.7 million. Despite the fact that we are only just into May, I shall be able to reveal the figures for 2005 on Monday, and I am afraid that they do not make good reading for the Minister.
	The response so far has been to look for solutions that involve very large computer-oriented fixes. We are all familiar with the 6.2 billion project designed for booking appointments, the so-called choose and book system. We are also aware that the project has been mired in controversy, with backlogs, and with money going down the drain. It was supposed to be up and running by last year, but it was not. I would be interested to hear a progress report from the Minister on that system. An efficient choose and book system would of course make a great deal of difference in cutting the number of missed appointments. However, the Government seem to confuse spending vast sums of taxpayers' money on complicated computer projects with actually fixing the problem.
	In the context of the pledge to try to reduce the number of no shows, and the reference to the new 6.2 billion computer system, does the Minister feel that that was money well spent? Has it lived up to expectations? Clearly it cannot have done so far. Will it live up to expectations, or will that money never be recovered? I ask that question for a very good reason: 6.2 billion is perhaps six times the deficit for this year alone in the NHS. That is an awful lot of money, and so far we have seen no benefits from the system. I have figures from August last year showing that if the system had been on target, 205,000 appointments should have been made. However, only 63 appointments were booked though the computerised system. I would be interested to hear an update on those figures from the Minister.
	The NHS has a big problem of missed appointments, which is costing it a huge amount of money. I will have the figures for that on Monday, and I would not be surprised if the sum is the same as the total deficit in the NHS for last year. I hope that the Minister will accept that that is a huge issue, and I know that the Government have accepted previously that it is a problem. The proposed solution appears to be a very large computer project, which, according to the National Audit Office, has gone terribly wrong. I am keen to hear an update on that.
	Simultaneouslylet us not forget that this is at the heart of the problemmy East and North Hertfordshire NHS Trust, which serves perhaps 300,000 people in the Welwyn Hatfield area, while losing all this money through missed appointments and many other problems relating to its financing and running, is closing down children's services, the blue light accident and emergency department, the maternity department, elective surgery and many other services besides. We must get to grips with that problem, which has now spiralled out of control. I am pretty sure that the answer is not spending money. There must be solutions relating to the role of management and Ministers in the running of the NHS.
	Before the Minister starts accusing me of wanting to charge all the patients who miss appointments, let me say that that is not what I am driving at. I use the NHS myself, and do not have any other kind of health cover. Indeed, my life was saved by the NHS in 19992000, when I was effectively treated for Hodgkin's lymphoma. I am indebted to the NHS. I do not want to hear anything about how, if the Conservatives got into power, we would start charging people for all their NHS services. That is not what this debate is aboutI know that, because it is my debate. What I want to know is what will happen about missed appointments.
	The Minister might try to tell us that these problems are much more complex than I am trying to represent them as, that the administration involved is somehow beyond our comprehension, that the 6 billion IT system might ultimately resolve the problemsalthough so far we have little to show for the expenditureand perhaps that dark forces are at work that a mere Back Bencher cannot easily comprehend. I would point to research carried out by the NHS on why people are missing their appointments. What is the great reason behind more than one in 10 people missing their appointments, at huge cost to the NHS? According to that research, two thirds of those people simply forget.
	I am not convinced that a 6.2 billion computer project is required to remind people of their appointments. I approve of spending on technology in the NHS and can see the worth of it. What worries me more than anything, however, is that where there is a problem there is a budget, that when that budget is broken, that does not much matter, and more will be spent until the problem is solved.
	I do not think it is good enough to say that spending money on huge computer projects is a panacea that will solve a problem two thirds of which is due simply to the fact that an individual forgot to turn up for an appointment. There must be something else that we can do, and some of the solutions may be blindingly straightforward, as is the problem itselfthe fact that people are simply forgetting about appointments.
	Let me run a few of my ideas past the Minister. Perhaps I will receive a response. It seems to me that when my constituent Mr. John Mitchell, being a public-spirited gentleman, sent a 15 cheque to the NHS trust, it might have been better had it been cashable by the trust. That was, after all, my constituent's intention. I should have thought that if the trust did not feel that it could cash the cheque, it would have been appropriate to send it to the League of Friends of the QEII hospital.
	What interests me is where the blockage lies. When the trust was asked about the matter, the head of communications, one Peter Gibson, told the local newspaper, the Welwyn and Hatfield Times, that it would be simply illegal to accept the 15. I ask the Minister this: is it illegal to accept a 15 donation, and if so, why? If it is not illegal, will the Minister undertake to drop a note to the chief executive of the East and North Hertfordshire NHS Trust, Nick Carver, explaining that it is not illegal? While she is at it, perhaps she will write to the other 264 trusts in England and Wales telling them that they can accept such donations.
	On Monday, when I release a report containing all the data from all those 264 trusts, I shall be very surprised if other people do not come forward with exactly the same story. I am fairly convinced that a string of constituents from all over the United Kingdom will say, That's funny: exactly the same thing happened to me.
	I should have thought that in an age when people care passionately about the national health service and really want it to work, the Government and Ministers would want to do more to ensure that people who are generous in spirit, like my constituent, can make up for their error in forgetting to turn up for an appointment. I should have thought that there was sufficient good will throughout the nation for the establishment of a rather more formal arrangement.
	Another solution might be to adopt the dentists' system. There might be a compulsory charge, or it could be suggested that those who missed appointments might like to make a payment. I would be surprised if that did not raise several million pounds a year.
	There are practical solutions that the Minister could pledge to adopt this evening. She could write to all the chief executives reminding them of the legal position. If it is not the case that, as the East and North Hertfordshire NHS Trust claimed, it would have been illegal to accept the money, a letter to remind trusts of that would cost only 264 postage stamps and could save the NHS a fortune. The Minister could also consider whether it would be possible to introduce a scheme that would stop shy of compulsion, but would go as far as inviting public-spirited payments for missed appointmentsif necessary, through a separate fund, or possibly to organisations such as the league of friends of the QEII hospital, which has equivalents throughout the country, or indeed to the main coffers of the trust itself.
	I feel that my questions require answers. I hope that on Monday the Minister will be interested to see the results of the research that I have conducted throughout the country. I also hope that if I send her a copy of my report on the total cost of missed NHS appointments, she will tell me whether further measures could be taken to reduce the number of missed appointmentsand I very much hope that the solution will not be purely and simply to rely on a 6.2 billion computer project that we all know has gone badly wrong.

Jane Kennedy: I must confess that when my private office approaches me and says You must respond to an Adjournment debate, my heart often sinks. On this occasion, however, I must compliment the hon. Member for Welwyn Hatfield (Grant Shapps) on the entertaining way in which he presented his case, and the industry that he displayed.
	I was aware that the hon. Gentleman had made requests under freedom of information legislation to various health organisations, and I compliment him on his industry. He is right that this is an important issue: we take it seriously and acknowledge that it is problem.
	I shall not adopt a political position and say how much better things are under this Government. That would not be appropriate, but it is important to set the context for the debate and make it clear that our investment and reforms are having an impact on waiting times. In the past four years, waiting times for a first out-patient appointment have halved, falling from 26 weeks to 13. The maximum waiting time for an operation is now six monthsand the average is even lowercompared with the two years or more that some patients used to endure.
	I do not pretend that the new connecting for health computer system will be the panacea that resolves all problems. I shall detail what I expect will happen in a moment, but our investment means that the NHS will have a proper IT system that is able to track patient progress. That will make it much easier for patients to contact their GPs and the consultants dealing with their cases than has been the case in the past.
	In addition, we are enabling patients to choose where they will go for treatment. The connecting for health system does much more than allow hospitals to track people who do not turn up for appointments. The hon. Member for Welwyn Hatfield referred to the electronic booking system that we are putting in place. That will enable patients to select the time and date, as well the place, for their treatment.
	On top of that, our financial reforms are developing incentives in the NHS to tackle the problem locally. Payment by results should mean that hospitals will no longer be able to pass on the costs of missed appointments to their commissioners. I understand that a figure of 100 per missed appointment is being bandied about. It is not one that I recognise: I think that it overstates the cost by quite a large amount, although I accept that missed appointments are a cost to the NHS.

Grant Shapps: That figure is based on Government estimates in the past, although I admit that I have only seen it quoted in various articles and do not know its precise source. However, I have much more detailed information about the actual cost of each missed appointment. I assure the Minister that my estimates will be based not on the 100 figure, but on independent health trust statistics.
	At the beginning of her speech, the Minister reeled out some information about how appointments were being speeded up. Does she agree that that makes little difference to people in Welwyn Hatfield, given that the QE2 is all but being closed down?

Jane Kennedy: Clearly, I do not accept what the hon. Gentleman says about his local hospital, and I shall speak in a moment about the efforts being made by the local health organisation to reduce the number of occasions on which appointments are missed and the cost that flows from them.
	Where missed appointments are a particular problem, NHS trusts already have the devolved power and the incentive to tackle them locally. Hospitals know their rates of failed attendances. Those figures are predictable, and NHS trusts are dealing with the problem. For example, it is likely that two patients out of 20 will not turn up to a clinic. When a patient does not show up, doctors do not just sit on their hands: they get on and see the next available patient.
	Like other NHS trusts, East and North Hertfordshire is taking action locally to reduce the number of missed appointments. That goes beyond merely spraying money at the problem, but includes improving the quality of the trust's communication with patients. Reminders are sent out, and the trust also follows the matter up with those who fail to attend. In addition, it contacts the GPs of people who frequently miss appointments. That generally makes clear what the problem is, and I assure the House that it is not the same for all patients. I shall be interested in what the hon. Gentleman's research uncovers in that regard.
	The hon. Gentleman referred to his local newspaper. His local trust uses the media to explain how important it is to keep appointments or, if that is not possible, that the trust is contacted to change the appointment. That has enabled the trust to reduce missed out-patient appointments by nearly 10 per cent. this year and it is planning action to reduce them even further next year.
	The hon. Gentleman said that his constituent, Mr. Mitchell, had offered a contribution towards the cost of his missed appointment. I understand that his contribution was not accepted because it was offered as a payment. As I hope we all accept, the health service does not make charges to patients, so it cannot accept payments. However, had the contribution been offered to the League of Friends of the hospital, as the hon. Gentleman suggested, it would have been in order for the friends to accept it. A donation is different from an offer of payment, which was, I understand, the context of the offer.
	The issue of missed appointments is important and I thank the hon. Gentleman for raising it and allowing me the opportunity to explain the work that the Government and the health service are doing to reduce that extra burden and cost to the NHS. One of the reasons that the issue is so important is that the NHS is treating more patients than ever. In the last year, 9 per cent. more patients were seen in out-patient clinics and 6 per cent. more as in-patients than under the previous Government. Despite that, the proportion of missed out-patient appointments is coming downfrom 13 per cent. last year to 12 per cent. for the first three quarters of 200506.

Grant Shapps: I want to check some of those figures, to make sure that I heard them correctly. The number of missed appointments is not coming down for the year as a whole, so will the right hon. Lady undertake to ensure that there is some feedback on those figures when the report is submitted? The numbers mean nothing to me in the context of the research that has been carried out, so I suggest that they may be wrong.

Jane Kennedy: The Government will receive the hon. Gentleman's report with interest when it is ready for publication.
	The electronic booking system to which the hon. Gentleman referred earlier should allow patients to see all available dates and times. They can then book an appointment straight after seeing their GP, or at their own convenience after checking with friends and family. We have been testing the system and we know, from pilot sites, that it has a strong, positive impact on missed appointments. The hon. Gentleman may be interested to learn that in one pilot scheme, the out-patients manager reported that none of the patients who had been electronically booked failed to turn up for their appointment. In another pilot, cardiology missed appointments dropped to 10 per cent. for electronically booked appointments, compared with 30 per cent. for traditionally booked appointments. At the Good Hope Hospital NHS Trust, the first two years of electronic booking helped to reduce missed appointments from 16 to 2 per cent. There is still further work to do and further improvements to be made, but we are making progress.
	The investments we have made mean that now almost every out-patient appointment is booked in consultation with the patient, which is a massive improvement on the take it or leave it approach of the past. Although we do not collect figures on missed appointments with GPs, we know that it is an issue. That is why the Department of Health is funding the Keep it or cancel it, but don't forget it campaign to raise awareness among patients of the impact of their missed appointments. The campaign provides GP practices and primary care trusts with examples of best practice from other areas, as well as tools to help them to address missed appointments.
	Finally, may I return to the point about charging patients for missed appointments? I do not believe that it would be right to charge for missed appointments. First and most important, we remain committed to an NHS that is free at the point of delivery, and I welcome the hon. Gentleman's generous comments about his gratitude to the NHS in his case. Charging for missed appointments would be not only wrong in principle, but uneconomic. Unless the fines were very large, it would cost more to collect them than it would bring in revenue. We are not sure how effective that would be. We know that many of the people who fail to attend are elderly or suffer from mental illness. Would it not be a cruel policy that punished the very people most in need of care and least able to pay?
	We see a national health service that is treating more patients than ever before, treating them more quickly and reducing missed appointments. We are introducing systems that will allow patients for the first time to choose where and when they will be treated, and we are enabling local NHS organisations to tackle missed appointments at the grass roots. I accept that the problem is not resolved, and that there is still a way to go. I anticipate that the hon. Gentleman's report will enable us to consider further what more can be done to help local NHS organisations to reduce the cost to them of missed appointments.
	Question put and agreed to.
	Adjourned accordingly at twenty-six minutes past Seven o'clock.